Kim Kardashian will pay a $1.26 million penalty for touting a crypto security without disclosing that she was paid $250,000 to promote the token, the Securities and Exchange Commission announced today. Kardashian agreed to the payment to settle the charges and "agreed to not promote any crypto asset securities for three years," the SEC said.

"Kardashian's failure to disclose this compensation violated Section 17(b) of the Securities Act, which makes it unlawful for any person to promote a security without fully disclosing the receipt and amount of such consideration from an issuer," the SEC order said. This law is known as the "anti-touting" provision.

In June 2021, Kardashian promoted an EthereumMax offering on her Instagram account by posting an image containing the following text:

Are you guys into crypto????

This is not financial advice but sharing what my friends just told me about the Ethereum Max token!

A few minutes ago Ethereum Max burned 400 trillion tokens—literally 50% of their admin wallet giving back to the entire E-Max community.

Kardashian's post also contained "an introductory video stating she had a 'big announcement'" and "a link to the EthereumMax website, where instructions were provided for potential investors to purchase EMAX tokens," the SEC said. Kardashian's Instagram post occurred about one month after EthereumMax launched its tokens.

"The EMAX tokens promoted by Kardashian were offered and sold as investment contracts and therefore securities pursuant to Section 2(a)(1) of the Securities Act," the SEC order said.

SEC: US law is clear on touting

Kardashian had 225 million Instagram followers at the time, the SEC said. Her account now has 331 million followers, and she reportedly has a net worth of $1.8 billion.

SEC Chair Gary Gensler said the case is "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." EthereumMax paid Kardashian $250,000 through an intermediary.

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"The federal securities laws are clear that any celebrity or other individual who promotes a crypto asset security must disclose the nature, source, and amount of compensation they received in exchange for the promotion," SEC Division of Enforcement Director Gurbir Grewal said. "Investors are entitled to know whether the publicity of a security is unbiased, and Ms. Kardashian failed to disclose this information."

The SEC issued a warning in November 2017 stating that endorsements on social media "may be unlawful if they do not disclose the nature, source, and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement."

Kardashian's $1.26 million payment includes a $1 million penalty and "approximately $260,000 in disgorgement, which represents her promotional payment, plus prejudgment interest." Kardashian agreed to the payment "without admitting or denying the findings." The disgorgement and prejudgment interest "will be distributed to harmed investors, if feasible," the SEC order said.

The SEC said its investigation is continuing and that Kardashian agreed to "continue to cooperate with the Commission's investigation in this matter."

Kardashian post apparently had an effect

Gensler made what should be the fairly obvious point 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." Gensler also urged caution about investing in crypto and other products endorsed by celebrities in a new YouTube video. (The SEC YouTube page has 10,000 subscribers, and the new video has been viewed a little over 2,300 times so far.)

But Kardashian's post apparently had an influence on a significant number of people. In September 2021, Morning Consult announced the results of a poll about the impact of Kardashian's Instagram post:

Roughly one in five adults reported seeing something about Kardashian's crypto Instagram, according to a poll conducted in the days following the post, and the share was higher among crypto owners, at 31 percent.

Kardashian's conversion was also impressive: A striking 19 percent of respondents who said they heard about the post invested in EthereumMax as a result.

Kardashian's post was one of many by celebrities endorsing a range of cryptocurrency offers. Morning Consult noted that "cryptocurrency's audience is radically different from what financial services leaders are used to serving" and that "crypto owners are more likely than the typical investor to turn to celebrities for crypto advice."