Yesterday, it was announced that Kim Kardashian has agreed to pay a $1.26m (£1.12m) fine for advertising EthereumMax on her Instagram page and not disclosing that she had been paid to do so. The story, which was published in June 2021, had the potential of being viewed by her 328 million followers in what many think may have been the “financial promotion with the single biggest audience reach in history”.
The post read: ‘Are you guys into crypto? This is not financial advice but sharing what my friends told me about the EthereumMax token!’.
In the days following the story, the currency’s value increased to over 1,300% more than its initial price before plummeting to “an all-time low” a month later.
Regulators believe this was part of a larger ‘pump and dump’ scheme where Kim Kardashian alongside boxer Floyd Mayweather Jr, basketball player Paul Pierce, and EthereumMax’s creators collaborated to inflate the price of the currency.
In response to the news, Matt Smith, CEO at compliance technology and data analytics firm SteelEye, says this latest incident should be a wakeup call for regulators to start taking ‘modern market manipulation’ seriously:
“Kim Kardashian’s social media post is not the first time – and certainly won’t be the last – that a celebrity has been able to significantly influence the price of financial instruments by utilising the global reach of social media.
“Elon Musk is probably the most famous example. Last year, the world’s richest man and CEO of luxury-car manufacturer, Tesla, took to Twitter and asked his 63 million followers if he should sell 10% of his Tesla stock, promising to abide by the result of the poll. It caused Tesla’s share price to plummet by 12%. He also managed to manipulate the stock price by branding Tesla’s valuation ‘strange’, which sent share prices soaring.
“The fact Kardashian has been charged for her promotion is certainly progress. Just as non-compliance in financial services carries high penalties, so should ‘modern market manipulation’ by social media, and it would appear that the SEC is making an example of Kardashian in the hope that it will bring other celebrities and influencers in line.
“But does this go far enough? Even if Kardashian would have alerted her followers that she was being paid for the post, it is likely that it still would have influenced thousands of people to invest – just like we have seen with Musk who is not restricted by advertising rules when tweeting about his own company.
“It seems clear to me that if we do not introduce more rigorous and clear regulations around social media usage, this type of online activity will only become more prolific. Kardashian is estimated to be worth $1.8bn.
“The finance sector is heavily regulated and there are stringent rules in place to prevent market manipulation, but there is a gaping hole in the framework as evidenced by this fine, and it is time for regulators to intervene before too much damage is done.