Kardashian case highlights foggy rules surrounding crypto promotion. The Securities Exchange Commission (SEC) has ordered Kim Kardashian to pay $1.26 million for promoting the cryptocurrency EMAX without disclosing that she was paid to do so.
Federal securities law requires anyone paid to promote a crypto asset to “disclose the nature, source, and amount of compensation they received in exchange for the promotion,” said SEC enforcement director Gurbir S. Grewal in a press release.
Kardashian was charged with violating the anti-touting provision of the Securities Act of 1933, which prohibits giving “publicity to…any…advertisement…or communication which…describes [a] security for a consideration received or to be received…without fully disclosing the receipt…of such consideration and the amount thereof.”
According to the SEC, Kardashian “was paid $250,000 to publish a post on her Instagram account about EMAX tokens, the crypto asset security being offered by EthereumMax.” Without admitting or denying the SEC’s allegations, Kardashian has “agreed to settle the charges, pay $1.26 million in penalties, disgorgement, and interest,” as well as refrain from promoting any crypto assets for three years.
The SEC is clearly trying to make an example of Kardashian. “This case is a reminder that, when celebrities or influencers endorse investment opportunities, including crypto asset securities, it doesn’t mean that those investment products are right for all investors,” said SEC Chair Gary Gensler in the press release. “Ms. Kardashian’s case also serves as a reminder to celebrities and others that the law requires them to disclose to the public when and how much they are paid to promote investing in securities.”
Gensler also made a video warning against taking celebrity advice on cryptocurrency.
It’s a good idea not to base your financial decisions on celebrity promos. But that doesn’t mean cases like these are a good use of the SEC’s time. And the penalty imposed here—more than a million dollars—is way out of proportion with the offense.
Commercial speech is still free speech. But the SEC’s anti-touting rule impedes this speech and holds crypto assets and other securities to standards that other types of products, investments, and services are not.
The situation gets extra dicey when we’re talking about digital currencies and assets, which aren’t always considered a security that falls under the SEC purview. SEC officials have previously stated that Bitcoin and Ethereum are not securities.
“Crypto enthusiasts say that their ventures are decentralized in a way that makes old rules a poor fit, and crypto trading platforms argue that the assets they’re listing should be considered commodities, not securities,” notes Bloomberg.
The securities versus commodities debate is still raging, with the answer far from clear. And the SEC hasn’t been explicit about which tokens it considers securities and which it considers commodities, leaving anyone who promotes or otherwise works with crypto assets vulnerable to prosecution for rules they weren’t aware they had to follow.
FREE MINDS
Supreme Court heads back to business with a historically low approval rating. The U.S. Supreme Court is back in business today after its late summer recess. The new term will include cases on affirmative action, voting rights, free speech versus anti-discrimination law, and adoption of Native American children by non–Native American parents.
The court heads back into session with a historic low approval rating, according a new Gallup Poll:
Forty-seven percent of U.S. adults say they have “a great deal” or “a fair amount” of trust in the judicial branch of the federal government that is headed by the Supreme Court. This represents a 20-percentage-point drop from two years ago, including seven points since last year, and is now the lowest in Gallup’s trend by six points. The judicial branch’s current tarnished image contrasts with trust levels exceeding two-thirds in most years in Gallup’s trend that began in 1972.
This week, “the new term will begin with a lineup that promises another historic series of rulings—and even greater levels of rage directed at the court,” writes Jonathan Turley at The Hill.
FREE MARKETS
Big government is back, warns Bloomberg Businessweek. To which a reasonable reply might be: Wait, when was it gone? It would be more accurate to say that big government is getting bigger. Either way, the prognosis isn’t good:
Germany’s government made an extravagant promise as it announced its second multibillion-euro nationalization of an energy company in a week. Speaking in Berlin on Sept. 21, Economy Minister Robert Habeck pledged that “the state will do everything” to minimize disruptions in natural gas supplies.
The message was intended to instill calm at a time of high anxiety, with Europe scrambling to replace imports of oil, coal, and above all gas from Russia. But Habeck’s choice of words also underscored that we’re living in a new era of big government. Whether it’s replacing lost income for workers and businesses during pandemic lockdowns or ensuring that there’s enough fuel to heat homes and power industries, state intervention is back in vogue in a way we haven’t seen since the early 1980s, when a toxic combination of high inflation and ballooning fiscal deficits forced a retreat.
More here.
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