Kim Kardashian had to pay $1.26 million fine for Instagram post on EthereumMax crypto

For billionaire Kim Kardashian, $1.26 million is mere change. But even then, the $1.26 million is a costly fine to pay for a small Instagram post.

• American reality TV star Kim Kardashian is forced to pay

$1.26 million (Rs 10.25 crore)

in fine to the US SEC (Securities and Exchange Commission) for an Instagram post she put out in June 2021. 

What could be this costly Instagram post? Back in 2021, Kim Kardashian promoted a cryptocurrency coin called EthereumMax or EMAX (not related to the blockchain Ethereum) in an Instagram post. 

EthereumMax or EMAX

• The post called for her millions of followers to invest in the coin.
• However, what was unknown to her followers was that it was an advertisement. 
• Kim was reportedly paid around $250,000 or over Rs 2 crore for the post. 
• In a few months, it turned out that the coin creators were running a pump-and-dump scam. 
• And so, soon, investors suffered a heavy loss and lost much of their investment while the creators made away with the investors' money. 
• The US SEC fined Kim K a hefty fine for promoting the coin without revealing that it was a paid advertisement. 
• The celebrity is also banned from making any crypto promotions for the next three years. 
• Kim's lawyer said, "Kardashian fully cooperated with the SEC from the very beginning and she remains willing to do whatever she can to assist the SEC in this matter. She wanted to get this matter behind her to avoid a protracted dispute."

Recap: Read here to know the complete story.

What happened to EMAX? The coin was launched in May 2021. 

Pump and Dump scheme

• The creators then paid celebs like Kim to promote their coin to increase its value. 
• Once the value of the coin had peaked, the creators with a massive share of investment sold off their coins, resulting in a sudden drop in value. 
• EthereumMax's value has dropped 95% since Kim K promoted the coin.
• So, if you had invested around Rs 1,000 in the coin following Kim's endorsement, your investment today would be worth just Rs 50. 
• In January 2022, Kim, boxer Floyd Mayweather Jr, basketball player Paul Pierce, and EthereumMax's creators were sued by investors.

Celebrity crypto endorsements: You must have been observing your favourite celebrity promoting cryptocurrencies out of the blue. Something, you would agree, that is uncharacteristic of them.

• That's because it's almost always a paid-for advertisement; except, it is not revealed. 
• So, followers and fans are made to believe that their favourite celebrity has actually invested in a particular crypto coin and it is safe to do so.
• However, in many of these cases, the coins do not turn out to be a lucrative investment. Neither does it have a celebrity personally investing in it. 
• So, for people who do not do the homework researching the coins and blindly believe a celebrity suggesting it without making it look like an ad, they often end up losing all their money. 
• Gary Gensler, who chairs the US SEC, termed the EMAX case a "reminder" to people that celebrity endorsements do not necessarily make crypto coin worth investing in. 
• He also added that a celeb endorsement doesn't even mean that a coin is legitimate, like in the case of EthereumMax. 

Other celebrities: Kim Kardashian is not the only celebrity fined by the US SEC. Boxer Floyd Mayweather Jr and music producer DJ Khaled were also charged in 2018 for not disclosing paid promotions for initial coin offerings.

• It needs to be noted that Kim Kardashian, Mayweather and DJ Khaled have neither admitted to nor denied any wrongdoing. 

Takeaway: So, the next time you dream of making easy big bucks through cryptocurrency, think twice. And don't blindly invest in a crypto coin just because your favourite celebrity is endorsing it. Chances are, s/he is being paid to do so and doesn't have any investments themselves.