On October 3, 2022 the US Security Exchange Commission ("SEC") charged Kim Kardashian for “unlawfully touting” a “crypto security” on Instagram. A vivid reminder for celebrities or influencers endorsing investment opportunities, such as crypto asset securities, to take a closer look at the applicable rules.

1. What contained this Instagram post?

The charges against the billionaire influencer result from a post she made in June 2021 on Instagram where she promoted EthereumMax’s crypto asset, according to the SEC. The short Instagram post reproduced below contained:

  • A disclaimer that it was not a financial advice;
  • an hashtag ”#ad”; and
  • a link to EthereumMax’s website.

According to the SEC Kim Kardashian violated Section 17 (b) of the Securities Act, which states that it: “makes it unlawful for any person to tout a stock without disclosing the nature and substance of any consideration, whether present or future, direct or indirect, received from an issuer, underwriter or dealer”. Under the American law, Kim Kardashian should then have disclosed to her followers that she had been paid $250,000 by EMAX to promote the crypto-currency. The financial disclaimer was far from being sufficient.

Without admitting or denying the SEC’s findings, Kardashian agreed to settle the charges by paying $1.26 million in penalties, disgorgement, and interest.

She also accepted to restrain herself for promoting any crypto asset securities for three years.

2. Is the SEC's view on crypto marketing an exception?

The American financial markets watchdog wished to set an example with Kim Kardashian’s case, as the billionaire reality TV superstar was one of many celebrities to rush into the crypto market. SEC warns then investors and especially young ones to make up their own minds rather than relay on influential figure’s advice.

Sharing the SEC’s observation, the Spanish National Securities Market Commission (“CNMV”) adopted in January 2022 specific rules regarding the advertising of crypto. In particular, they establish a mandatory procedure for prior communication to the CNMV of mass advertising campaigns addressed to 100,000 people or more. At the European regulatory level, the issue was also addressed by the drafters of the Regulation on markets in crypto assets (“MiCA”). As a result, issuers of crypto assets resorting to marketing communication must provide clients with clear, accurate and non-misleading information, as well as a clear warning of the risks associated with purchasing crypto assets and a non-misleading statement towards the real or perceived advantages of any crypto assets

3. How to mitigate the risk?

Crypto industry actors should then be careful when they resort to influencers services to promote their crypto financial products Provide to the influencers’ clear marketing guidelines appears as the best way to mitigate risks.

The listed recommendations are considered as general basis for crypto marketing guidelines. How necessary they are, there are not self-sufficient as both jurisdictions’ specificities and the crypto product’s features must be taken into account:

  • Know your product: make sure that you are aware of the regulatory qualification of the digital asset to be marketed in a particular jurisdiction. If the digital asset qualifies as a financial product, stringent regulations may apply.

  • Carefully evaluate the means of communication: the means used by the influencer shall impact the communication strategy and the risks it encapsulates. Consider fully the means of the marketing campaign.

  • Use a clear and objective language: the influencer must opt for the appropriate language towards its audience. Defining the influencer’s target audience in the guidelines is then vital.

  • Present clearly both the benefits and the risks: the influencer should avoid overly meliorative speeches. The guidelines my define the lexical set to be used.

  • Restrain from giving any misrepresentation of the product: the influencer should be careful not to present a false or misleading statement of fact. Writing keys elements about what is and what is not the promoted crypto product seems sensible.

  • Disclose the relationship: the influencer may resort to the traditional use of hashtags for the matter.

  • Correct your mistakes: in the event of an irregular communication, according to the guidelines a correction by the influencer with the propre language should be anticipated.

  • Write a clear disclaimer: the influencer shall make a clear disclaimer to clarify that the communication is no investment advice. Such disclaimer should clearly appear depending on the means of communication.

As each crypto marketing campaign is unique, creating tailor-made guidelines appear as the best solution to avoid the curbs of the regulators.