SEC Going After Kim Kardashian Could Have Negative Impact On Influencers
Instead of fining Kardashian $1.26 million for promoting EthereumMax, the officials could have worked with her to set more open rules.
Kim Kardashian resolved an SEC accusation that she marketed a crypto asset security issued by EthereumMax without reporting her $250,000 payment. While she complied and paid $1.26 million in fines, the accusation emphasises the vulnerability “influencers” face due to an aggressive SEC that hasn’t established legal certainty.
Pushing American influencers to leave
Legal researcher and podcast presenter Jacob Robinson said of the agency’s action against Kardashian, “This probably leads to less hawking by celebs who have no understanding of the underlying enterprise & are just earning a large paycheck.”
Thanks to social media, content producers and influencers are promoting products and services for companies. “Creator economy” has disadvantages, unfortunately. Influencers typically sell items and services that don’t fulfil everyone’s interests in exchange for remuneration.
While this privilege can be abused, influencers are not doing anything structurally different from companies when they buy media and TV ads or when board members join and take a retainer to share their network and support an organisation. When a company buys an ad in The New York Times or Vogue, are the media outlets accountable for not revealing payment to all readers? The media’s financial model would collapse without sponsored advertising.
Why are influencers handled differently and why might a federal agency target them? Car market: Is a used vehicle salesman singled out if they sell a recalled or flawed automobile? As we’ve seen with Volkswagen, Toyota, and others, the automobile corporation may be liable, but the employee is not.
Kardashian’s case might alienate and stifle other creators. Many content creators don’t make six-figure wages, therefore they can’t “afford” the $1.26 million punishment. The measure might force many content providers to nations with more favourable rules.
Stocks and liability
SEC v. W. J. Howey Co. resulted to the “Howey test” in 1946. If these requirements are fulfilled, the Howey test establishes a “investment contract” An investment in a shared venture with the prospect of benefit from others’ labour.
The exam was implemented in a different economic era. Many initiatives using fungible tokens are securities, no matter how liberally one defines the term. Other initiatives, notably nonfungible token ventures, are grayer. Many NFT ventures don’t promise holders a profit, but rather perks like exclusive access to events, seminars, or offers. Bitboy’s Ben Armstrong’s revealed promotion rates.
The SEC’s latest regulatory action went after Kardashian for promoting EthereumMax (EMAX) without reporting that she was paid rather than for EthereumMax being a security. The case underscores a fundamental problem influencers will have in the Web3 economy if they must worry about regulatory risk for advocating projects, even in a social media post.
Other countries treat Web3 differently. The UAE wants its economic performance to be judged by its “gross metaverse product” rather than the standard gross domestic product used for cross-country productivity comparisons. The UAE, like Singapore, is a startup hotspot.
Kardashian’s situation isn’t unique
If regulators are concerned that influencers are misusing their status by endorsing businesses and services without reporting remuneration, Web3 offers greater transparency and accountability on the blockchain. Influencers might unlock their digital wallets to check their payment and purchases. (Privacy-preserving blockchains are still needed since everyone’s life shouldn’t be on show, but with the blockchain, there’s more opportunity for openness and accountability where it matters.)
Web3 allows content providers to get paid without relying on centralised brand arrangements and alliances. NFTs empower artists to turn audiences into content-engaging communities.
Kardashian’s situation might have affected other influencers. Regulatory actions without penalties don’t have much bite, and often such penalties are needed to signal an agency’s seriousness. An alternative strategy would have been to reach out to Kardashian and galvanise support among influencers to establish stronger, more transparent norms around the promotion of products and services, especially crypto projects that could be classified as securities. This collaborative method would help crypto fans develop conventions and best practices.
