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How can bloggers and influencers legally protect themselves? How can bloggers ensure that the U.S. Securities and Exchange Commission (SEC) doesn’t fine them for sponsorships, particularly as it relates to promoting a security, like cryptocurrencies?

Keep reading to find out.

Why Did Kim Kardashian Get Fined by the SEC?

Kim Kardashian will be paying $1.26M to settle federal charges by the SEC that she did not properly meet disclosure requirements for promoting a cryptocurrency to her 328 million Instagram followers. 

What cryptocurrency did Kim Kardashian Promote?

Kim Kardashian promoted the cryptocurrency token, EthereumMAX (EMAX) on her Instagram story.

In 2021, Kardashian posted the following to her Instagram story: “This is not financial advice, but sharing what my friends just told me about the Ethereum Max token!”  She included the hashtag #ad, along with a number of other hashtags.

Her mistake? 

She promoted the crypto asset without properly disclosing the fact that she was getting paid for the social media post nor did she disclose the amount she was compensated (which was $250,000, by the way). 

The Director of the SEC’s Division of Enforcement stated that 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. Investors are entitled to know whether the publicity of a security is unbiased, and Ms. Kardashian failed to disclose this information.”

Chair Gensler of the SEC stated, “Ms. Kardashian’s case also serves as 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.” 

How Can Bloggers and Influencers Avoid Getting In Trouble with the SEC?

When it comes to crypto assets or any other type of security, bloggers and influencers should err on the side of over disclosing any monetary (or non-monetary) compensation received as a result of promoting a crypto asset or a security to avoid getting into trouble with the SEC.

Had Kim Kardashian been promoting an regular consumer good, the “#ad” label on her Instagram would arguably have been sufficient to meet the requirements set by the Federal Trade Commission. 

In fact, bloggers and influencers do this all the time by adding a “#ad”, “#sponsorship”, “#aff”, or “#affiliate” to posts for which they receive compensation for a sponsorship or affiliate product. 

However, the SEC has a very different standard when it comes to promoting securities. The anti-promotion provision is intended to protect investors from promoters who have a conflict of interest that could affect their recommendations to their audience. 

According to the SEC, “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. We encourage investors to consider an investment’s potential risks and opportunities in light of their own financial goals.”

Sponsorships and affiliate promotions are just some of the many ways that bloggers and influencers make money. Sponsorships are when bloggers or influencers (like Kim Kardashian) get paid by a person or company to write and/or promote a specific product or service in return for payment. Affiliate marketing is when a blogger or influencer is paid a commission when a reader purchases a product through a link provided by the blogger or influencer.

What Celebrities Have Been Fined By The SEC for Promoting a Crypto?

In 2018, the SEC fined famed boxer, Floyd Mayweather, Jr. for not failure to disclose monetary compensation that he received relating to promoting Centra Tech. Centra Tech was a company that had proposed creating a virtual currency debit card to its investors. The company was charged with deceiving its investors out of millions of dollars. 

DJ Khaled also failed to disclose payments received from Centra Tech and was also fined by the SEC.

In 2020, actor Steven Seagal also settled with the SEC for failure to disclose compensation he received from B2G.

In fact, a report released by the group, Truth In Advertising (TINA) reported that they had found 100s of instances and at least a dozen celebrities that had promoted non-fungible tokens (NFTs) without disclosing their financial relationship with the partnering company. 

How Can Bloggers and Influencers Protect Themselves When Posting Sponsorships?

Bloggers and influencers need to ensure that they have the proper disclosures in place, regardless if they are promoting a cryptocurrency, security, or any other general consumer product or service. 

For non-security promotions, generally speaking, affiliate and sponsorship disclosures should be listed at the top of every post which includes affiliate links or which includes a sponsored product or service.

Bloggers and influencers should also have a comprehensive affiliate disclosure and sponsorship disclosure in their Terms of Use.

Lastly, bloggers and influencers should carefully review all affiliate and sponsorship disclosure requirements applicable to them, and the products and services that they are promoting.

The moral of the story – when in doubt, over disclose and consult with an attorney to ensure that you aren’t going to get in hot water with the SEC, or any other federal agency.

 

 

 

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