Date: October 13, 2022Attorney: Joel MacMull

Therefore, Subject to Being Regulated

It’s a business lie — it’s different from a life lie” is a very funny line uttered by Alan Arkin in the movie Sunshine Cleaning. As funny as the comment is, however, it underscores a misconception that many have regarding what’s acceptable to say — or in this case not say — in a business context.

A recent example of this sort of “it doesn’t count” attitude, hit the wires just the other day with the Security and Exchange Commission’s (SEC) announcement that Kim Kardashian had agreed to pay a fine in the amount of almost $1.3 million to settle charges that she promoted a cryptocurrency, Ethereum Max’s bit token EMAX,  without also disclosing that she was paid for $250,000 for her endorsement. EMAX is a token built on the Ethereum blockchain.

“Are you guys into crypto????” Kardashian wrote in a June 2021 post she made on her  Instagram account — an account which it should be noted has more than 330 million followers. “This is not financial advice but sharing what my friends just told me about the Ethereum Max token!” Kardashian’s post then provided links to where potential investors could learn how to buy EMAX. Kardashian’s post did include “#AD” on the bottom of the post, but the SEC said Kardashian should have also disclosed that she received compensation for the post as well as the amount she was paid.

The securities industry, of course, is highly regulated and the SEC announced earlier this summer that it considers a range of widely traded digital assets to be securities which it intends to crack down on. Kardashian’s misstep is the SEC’s most significant enforcement action to date involving a celebrity and their endorsement of a crypto-related product. Importantly, that Kardashian made the statement on Instagram, as opposed to a more traditional medium like television or radio, was of no consequence. 

“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,” SEC Chair Gary Gensler said in a statement. “We encourage investors to consider an investment’s potential risks and opportunities in light of their own financial goals.”

While many of us will never endorse investment vehicles — or anything else for that matter — the broader take away here relevant to all of us is that social media, like all media, requires a duty of candor.