An unusual sequence of words popped into my mind this week: poor Kim Kardashian. At the risk of losing you before I’ve begun, I would like to ask that you spare a thought for a woman who is mainly famous for being famous (and for being rich).
It has emerged that this week Kardashian settled with the US Securities and Exchange Commission over the charge of “unlawfully touting” a “crypto security”, with a fine of $1.26mn, or about 0.07 per cent of her reported net worth of $1.8bn. (Cue the sound of tiny violins.)
But it is not the size of the fine that I believe makes Kardashian worthy of a second thought, nor the suggestion that the charge could impinge on her ambitions to become a lawyer. It’s that the transgression she has been charged with is negligible when you compare it with the level of grift, dishonesty, exploitation and outright fraud that goes on every day, largely unpunished, in the world of crypto.
The alleged violation dates back to June 2021, when the reality star-cum-business-mogul posted an Instagram story to her followers — she had more than 200mn of them at the time — asking: “Are you guys into crypto????” She continued: “This is not financial advice but sharing what my friends just told me about the Ethereum Max token!” There was then some fluff about how Ethereum Max was “giving back” to the community, and then a series of hashtags, including, right at the end, “#ad”.
So, given that she had said it was an advert, what is it exactly that Kardashian supposedly did wrong? It comes down to a technicality: if you are being paid to endorse or promote a security — which is what the SEC now considers crypto tokens such as this one to be — you must explicitly disclose this, along with the amount that you are being paid ($250,000, in this case).
I don’t wish to defend Kardashian’s peddling of a worthless crypto token — I believe all such promotion is unethical, and the fact she is so wealthy makes this all the less forgivable. But an influencer cannot give crypto the kind of legitimacy that someone who is not known to make a living from promoting rubbish on social media can.
Someone like Matt Damon, for example. He appeared in an advert for Crypto.com during this year’s US Super Bowl, suggesting that buying crypto and NFTs should be considered “brave”. Anyone sucked in by that will have suffered badly: the value of the crypto market has roughly halved since then, and NFTs have collapsed even more spectacularly. Unlike Crypto.com, Ethereum Max is hardly a big-time player: at the time of writing it was sitting at 4,226th in the rankings of the more than 21,000 tokens swilling around.
And what about the insiders behind the many crypto projects that have collapsed this year? People like Alex Mashinsky, founder of Celsius, the crypto-lending company that went bankrupt earlier this year owing its customers $4.7bn, and who the Financial Times reported this week withdrew $10mn just weeks before the company froze customer accounts.
John Reed Stark, a lawyer who set up and ran the SEC’s internet enforcement office for 11 years, says that the agency was right to punish Kardashian but that what she did wrong is totally “beside the point”.
“As important as this case is because it sends a powerful message about the promotion of crypto,” Stark tells me, “the [actions of] Kim Kardashian pale in comparison to the hornet’s nest, to the chicanery . . . and shameless, awful behaviour and shenanigans that goes on in the promotion of NFTs and . . . of exchanges and platforms.”
I’m not even sure that the Kardashian settlement sends out a particularly powerful message, given that the charge comes down to what is essentially a technical error. And while the video put out by SEC chair Gary Gensler urging people to treat crypto endorsements with caution might be fun, it only focuses on investments touted by celebrities and influencers. Regulators such as the SEC have been asleep at the wheel when it comes to crypto, and have not done nearly enough in terms of protecting consumers and regulating crypto platforms of all kinds.
I don’t expect you to pity Kardashian. But I hope you might give a thought to the fact that she was punished not for shilling a worthless crypto token to the masses — which can be done perfectly legally — but for failing to include just a little bit more small print.
Regulators should turn their attention to the bigger fry. It is all well and good that they are keeping up with the Kardashians, but they need to make sure they are keeping up with the rest of the lawless land of crypto, too.