E Point Perfect – Interesting and beneficial content
Law \ Legal

SEC Charges Kim Kardashian with Violating Anti-Touting Law, Signals to Celebrities that Payments for Endorsements Must Be Disclosed


To Kim Kardashian’s fans and followers, her endorsement of a product signals the product is on trend. However, when a simple post endorsing cryptocurrency goes out to the world, it may have not so simple ramifications.

On Oct. 3, 2022, the Securities and Exchange Commission (SEC) settled with Ms. Kardashian for violating Section 17b of the Securities Act of 1933, the anti-touting provision that requires individuals to disclose to the public when and how much they are paid to promote investing in securities. Persons making these endorsements may also be liable for potential violations of the anti-fraud provisions of federal securities laws, for participating in an unregistered offer and sale of securities, and for acting as unregistered brokers.[1] In a series of posts to her Instagram story, Kardashian asked her followers, “Are you guys into crypto??? This is not financial advice but sharing what my friends just told me about the ethereum max token!” Ms. Kardashian’s followers were then encouraged to head to the EthereumMax website and “join the E-Max community.”[2] Hashtags were added to the post and included “#ad” to denote that the post was a paid promotion. However, the SEC did not find the hashtag clear enough notice that Ms. Kardashian was being paid to promote EthereumMax. Kardashian’s actions resulted in a $1.26 million dollar fine ($260,000 of which were disgorgement funds resulting from the payment she received to post).

The SEC’s actions signal to celebrities and other promoters that they must disclose whether they have received payment for promoting or endorsing a security. The charge further indicates that promoters may be liable for other violations of law including acting as an unregistered broker and anti-fraud provisions. Finally, the SEC’s actions remind consumers to do their own research, as celebrities generally do not have sufficient expertise to make appropriate recommendations. An SEC investor alert dated November 2017 warned of the perils involved for investors making decisions merely based on the endorsement of a celebrity.[3]

Finally, the Federal Trade Commission (FTC) has provided endorsement guidelines[4] on celebrity endorsements (Federal Trade Commission 16 CFR Part 255). The guidelines are not as strict as the SEC’s and generally require disclosure of a “material connection” between the endorser and the company/product. Regulatory actions by the FTC come in the form of civil penalties and typically result in consent agreements.

[1] SEC.gov | SEC Statement Urging Caution Around Celebrity Backed ICOs

[2] Kim Kardashian paid $1.26 million for promoting illegal crypto (fudzilla.com)

[3] SEC.gov | Investor Alert: Celebrity Endorsements

[4] Guides Concerning the Use of Endorsements and Testimonials in Advertising (ftc.gov)


Source link

Related posts

Listeria-tainted Enoki Mushrooms sicken two in Michigan and Nevada

Register Now | Society for Corporate Governance: Southeastern Chapter Fall Conference & Annual Meeting

TYLA Director Spotlight: Tyler Granger

Many Thorny Issues? Cross-Border Criminal Investigations and Digital Evidence

Latest Full Spectrum Podcast Episode Now Posted: FCC December Open Meeting Recap