Keeping Up with Crypto

Christian GloverNews & Insights

By Christian Glover

Celebrities often use social media to promote the next big thing. These days, that next big thing is cryptocurrency (also referred to as “crypto”), a digital currency without any centralized regulatory authority.[1] Indeed, celebrities have capitalized on the mystique of crypto by promoting it to their followers as “the next big thing” and “safe and easy.”[2] However, these illusory assurances have come with steep consequences for those involved. For instance, the Securities and Exchange Commission (“SEC”) has fined celebrities like Kim Kardashian and Floyd Mayweather for failing to disclose that they were paid for their crypto promotions.[3] Further, this type of promotion is already the subject of at least one pending class action lawsuit in which the plaintiffs have alleged that investors were scammed into purchasing a depreciating asset after learning about it from Kardashian and Mayweather.[4] While crypto has not been heavily regulated due to its novelty and complexity, the SEC is taking measures to hold celebrities accountable for misinformation and to protect investors who may look to celebrities as a source of financial advice.

Crypto is essentially a digital currency built on blockchain (i.e., encrypted) technology.[5] “Unlike the U.S. Dollar or the Euro, there is no central authority that manages and maintains the value of a cryptocurrency . . . [as] these tasks are broadly distributed among a cryptocurrency’s users via the internet.”[6] While Bitcoin is the most popular and well-known cryptocurrency, there are thousands of cryptos available.[7] Although initially created to serve as a transactionally-focused currency, crypto has gained traction recently as a speculative asset and investment opportunity more akin to a stock or bond, leading many to question whether it should be regulated as a security.[8]

In S.E.C. v. W.J. Howey Co., 328 U.S. 293 (1946), the Supreme Court outlined a test to determine when a financial instrument can be considered a security. The case laid out four criteria for such a determination: (1) money is invested; (2) there is a reasonable expectation the investor will earn a profit; (3) the investment is in a common enterprise; and (4) profits are generated through the efforts of others.[9] Since crypto arguably meets these four criteria, the SEC has expanded its mission to “protect investors [and to] maintain fair, orderly, and efficient markets” to include the regulation of various cryptocurrencies and their marketplaces.[10]

Celebrities have cashed in on the complex and alluring nature of crypto by attaching it to their brands. In June 2021, Kardashian promoted the crypto asset EthereumMax on her Instagram account, telling her nearly 230 million followers that the asset gave away “400 trillion tokens–– literally 50% of their admin wallet . . . back to the entire E-max community.”[11] Floyd Mayweather also previously endorsed EthereumMax at both a celebrity boxing match and a major Bitcoin conference.[12] In October 2022, the SEC fined Kardashian nearly $1.3 million for not revealing that she was paid to endorse the asset.[13] It was reported that EthereumMax had lost 97% of its value around the time of Kardashian’s post.[14]          

In January 2022, a class action lawsuit was filed against Kardashian and Mayweather concerning EthereumMax.[15] The lawsuit alleged that EthereumMax and its celebrity promoters worked together to artificially inflate the asset’s token price through “false and misleading statements” on social media.[16] Many investors bought into EthereumMax after learning about it from Kardashian and Mayweather, only to suffer losses thereafter.[17]

Of course, Kardashian and Mayweather are not the only celebrities who have cashed in on the crypto craze. Earlier this year, there was an explosion of crypto advertisements during the Super Bowl (dubbed the “Crypto Bowl”[18]) during which A-List celebrities promoted various crypto assets to millions of viewers nationwide.[19] Although an influx of such behavior raises serious concerns, it is unlikely that the SEC has the resources to act against every celebrity who deceives followers into purchasing crypto. Therefore, targeting big names can serve as a broader warning to other celebrities who are not forthcoming about the compensation underpinning their endorsements.[20] As such, celebrities and influencers must be more aware of the applicable laws regarding the promotion of cryptocurrency (or any other financial assets), and any would-be crypto investors may benefit from doing their own research before blindly following the financial advice of celebrities.

UPDATE 11/16/22:

With yesterday’s class action filing against FTX implicating several celebrity endorsers, it will be interesting to see what consequences, if any, these individuals may face for their targeting of “unsophisticated investors” and their general involvement with the troubled cryptocurrency exchange platform.[21]


[1] Kate Ashford, What is Cryptocurrency?, Forbes Mag. (Oct. 7, 2022), https://www.forbes.com/advisor/investing/cryptocurrency/what-is-cryptocurrency.

[2] FTX, “Don’t Miss Out on Crypto: Larry David FTX Commercial, Youtube (Feb. 13, 2022), https://www.youtube.com/watch?v=BH5-rSxilxo.

[3] Emily Parker, Opinion: Kim Kardashian Did the Crypto Industry a Favor, Cnn (Oct. 7, 2022), https://www.cnn.com/2022/10/07/opinions/kim-kardashian-sec-fine-crypto-parker/index.html.

[4] Ryan Browne, Kim Kardashian and Floyd Mayweather Sued by Investors Over Alleged Crypto Scam, Cnbc (Jan. 13, 2022), https://www.cnbc.com/2022/01/12/kim-kardashian-and-floyd-mayweather-sued-over-alleged-crypto-scam.html.

[5] What is Blockchain?, Euromoney Learning (last visited Oct. 27, 2022), https://www.euromoney.com/learning/blockchain-explained/what-is-blockchain (“Blockchain is a system of recording information in a way that makes it difficult or impossible . . . to hack.”).

[6] Ashford, supra note 1.

[7] Id.

[8] Id.

[9] S.E.C. v. W.J. Howey Co., 328 U.S. 293, 301 (1946).

[10] About the SEC, US Securities and Exchange Comm (last visited Oct. 27, 2022), https://www.sec.gov/about.shtml; Wayne Duggan, Crypto Regulation: Is Cryptocurrency a Security?, Forbes Mag. (Oct. 7, 2022), https://www.forbes.com/advisor/investing/sec-crypto-regulation/.

[11] Taylor Locke, Kim Kardashian West and Other Influencers Are Being Paid to Advertise Cryptocurrency on Social Media, Cnbc (June 22, 2021), https://www.cnbc.com/2021/06/15/kim-kardashian-west-charli-damelio-jake-paul-posting-paid-crypto-ads.html.

[12] Browne, supra note 4.

[13] Chris Isidore and Matt Egan, Kim Kardashian Charged by SEC, Agrees to Pay $1.3 Million Fine, Cnbc (Oct. 3, 2022), https://www.cnn.com/2022/10/03/investing/kim-kardashian-sec-fine/index.html.

[14] Browne, supra note 4.

[15] Id.

[16] Id.

[17] Id.

[18] Yvonne Lau, The Super Bowl is Now Being Called “Crypto Bowl” as Upstart Finance Firms Spend Millions on T.V. Ads, Fortune Mag. (Feb. 3, 2022), https://fortune.com/2022/02/03/crypto-super-bowl-commercials-binance/.

[19] Ryan Faughnder, Why Larry David and Lebron James Super Bowl Ads Are the Tip of Hollywood’s Crypto Iceberg, LA Times (Feb. 13, 2022), https://www.latimes.com/entertainment-arts/business/story/2022-02-13/why-larry-david-and-lebron-james-super-bowl-ads-are-the-tip-of-hollywoods-crypto-iceberg.

[20] Browne, supra note 4.

[21] Todd Spangler, Larry David, Tom Brady, Stephen Curry, Other Celebs Sued Over FTX Crypto Exchange Collapse, Variety (Nov. 16, 2022), https://variety.com/2022/digital/news/ftx-lawsuit-larry-david-tom-brady-stephen-curry-crypto-1235434627/.