Opinion | The SEC Should Leave Kim Kardashian Alone

Kim Kardashian arrives at the White House Correspondents’ Association dinner in Washington, April 30.


bonnie cash/Press Pool

The Securities and Exchange Commission said this week that it has settled charges against

Kim Kardashian

for promoting a crypto investment on her Instagram page. In June 2021, Ms. Kardashian touted EthereumMax’s token, EMAX, to her 331 million followers, without disclosing she was paid $250,000 for the post.

It was a bad investment for her followers. EMAX has since lost 99% of its value. To settle the charges, Ms. Kardashian must disgorge the fee with interest, pay a million-dollar penalty, and promise not to promote any crypto products for three years.

While consistent with long-settled law and SEC practice, this prosecution is bad policy. The SEC would serve investors better by leaving Ms. Kardashian alone. Section 17(b) of the Securities Act of 1933 requires any person who gives publicity to the sale of a security to disclose any compensation for doing so. The SEC has enforced this anti-touting rule aggressively, bringing cases against people who have published entirely accurate internet posts about companies in return for undisclosed benefits.

The ban on celebrity endorsement is at odds with accepted practice elsewhere in the economy. Does anyone believe

Samuel L. Jackson

is touting Capital One because he really likes their credit cards? Americans are aware that celebrities are paid for their endorsements and discount those endorsements accordingly. Similarly, there aren’t anti-touting rules for selling gold, pharmaceuticals or even online gambling sites. Why would the SEC believe that investors are susceptible to believing Ms. Kardashian is a fan of EMAX, when they surely know she is being paid when she hawks countless non-investment products?

The SEC’s action might have a perverse effect on investor behavior. By going after Ms. Kardashian, the commission sends the signal that it is aggressively protecting investment opportunities in an effort to make them safe for average Americans. On their view of the world, information-poor retail investors are likely the only people who could possibly be duped into following what they thought was Ms. Kardashian’s altruistic investment advice. But crypto is an inherently speculative market, and the SEC shouldn’t be creating a false sense of confidence in retail investors. Investors would be better served if the SEC put up a sign that said that all investments, crypto or otherwise, run the risk of fraud and chicanery.

The SEC’s anti-touting rules also are overbroad and vague. While the case against Ms. Kardashian is clear under existing law, many cases are less so. Compensation can come in many forms that may seem obvious after the fact but didn’t actually motivate an endorsement. Anytime people talk about securities and investments, they risk violating Section 17. This chills speech, notwithstanding its constitutionally protected status. It also reduces the amount of useful information available in the market. Even speaking out in favor of no-load index funds might get one in trouble if a paper trail suggests the motive was less than pure.

Finally, there is the problem of selective enforcement. The internet has generated countless places in which people are promoting investments of various kinds. The growth of meme stocks set off in Reddit chat rooms is the latest example of the phenomenon. The price distortion caused by manipulators in these places is far greater than the impact of a bogus cryptocurrency. Ms. Kardashian’s celebrity prosecution makes good headlines, but it is unlikely to matter much in terms of the market. The jurisdictional limits of the SEC allow it to go after her and

Floyd Mayweather,

while Matt Damon’s Super Bowl ad for Crypto.com, part of a $65 million campaign, escapes enforcement because it was promoting a platform and not a security.

The SEC has more important tasks than taking on Kim Kardashian’s Instagram feed. If people are duped into betting on a crypto asset because she liked it, the SEC is unlikely to prevent them from making bad choices with their money. More important, bringing high-profile cases only makes matters worse by giving a false air of safety to unsafe investments. Investors and the SEC alike would be better off if we ignored Ms. Kardashian.

Mr. Henderson is a law professor at the University of Chicago. Mr. Raskin is an adjunct professor of law at New York University.

Wonder Land: Queen Elizabeth II’s personal virtues are an antidote to our era’s self-promotion and social-virtue signaling. Images: WPA Pool/Getty Images Composite: Mark Kelly

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