Kim Kardashian, the reality television personality, social media star, and entrepreneur has agreed to pay $1.26 million to settle the SEC’s claims that she improperly touted a crypto token without disclosing that she had been paid to promote it. According to the settlement, in June 2021, Kardashian promoted EthereumMax’s token, EMAX, to her nearly 225 million Instagram followers in exchange for a $250,000 fee from the company. Although Kardashian did include “#AD” at the bottom of her post, she did not disclose that she had been paid to promote the token. The EMAX token price has reportedly dropped 95% since June 2021.

In addition to the financial penalties, Kardashian also agreed that she would not promote any “crypto asset securities” for three years. 

Kim K’s trouble with the SEC is the most recent SEC enforcement action against celebrity crypto promoters. In 2018, the SEC brought its first celebrity crypto touting enforcement actions against professional boxer Floyd Mayweather Jr. and music producer DJ Khaled for failing to disclose payments they received for promoting Initial Coin Offerings (ICOs). Then, in February 2020, the SEC settled similar claims against actor Steven Seagal, resulting in $330,000 in fines and disgorgement. FINRA and the FTC also joined the action and have set their sights on so-called “fin-fluencers”, or celebrities who are paid to promote financial products and services.

The SEC’s Order in the Kardashian case largely resembles these earlier settlements, claiming that the token at issue was an investment contract under the Securities Act. To support its claim that the token is a security, the SEC pointed to EthereumMax’s statements in its public marketing materials and on social media concerning: the token’s rise in price, EthereumMax’s developers were investing significant effort to develop the platform, the token would be traded on secondary markets, and that the tokens would “rise in value as a result of the efforts of the Company and its agents.” In what could be perceived as a “we told you so”, the SEC’s Orders also cites earlier SEC statements urging caution around celebrity backed ICO’s and touting.

The SEC’s analysis in the Kardashian Order should look very familiar to those have been following the SEC’s recent enforcement actions. This summer, the SEC issued its first ever complaint alleging insider trading involving cryptocurrency. The SEC’s allegations of insider trading against a former Coinbase employee was so significant because it required the SEC to allege that the tokens at issue were securities. To do so, the SEC applied the decades-old Howey test to conclude that each token was an investment contract, which is a security.

The Kardashian Order, just like the SEC Coinbase insider trading Complaint, categorized the token that Kardashian promoted as a “crypto asset security” – a term the SEC only recently “coined” in the Coinbase insider trading case. This is another sign that the SEC is likely to continue regulating the crypto industry through enforcement actions as opposed to rulemaking, which could be years away. Despite the fact that the SEC is “figuring it out as they go”, they appear to be updating their regulatory/enforcement tool kit with their most recent enforcement actions.