Daniel Kuhn is a features reporter and assistant opinion editor for CoinDesk's Layer 2. He owns BTC and ETH.

Monday, before the market opened, the U.S. Securities and Exchange Commission (SEC) announced it settled with celebrity influencer Kim Kardashian for $1.26 million related to her paid endorsement of a cryptocurrency called EthereumMax. Just as when Kardashian first shilled the token in June 2021 (and failed to disclose the $250,000 she was paid to do so), the news raises the question … why? Why did Kardashian get involved in the first place, and why is the SEC fining her now?

The SEC, under Chairman Gary Gensler, is looking to send a message: Celebrities should think twice before endorsing cryptocurrencies. Kardashian, a celebrity who has built her reputation on being famous as well as ubiquitous, is a high-profile target. With a federal agency that is consistently underfunded going after this big target, the settlement serves as a warning for the crypto industry at large.

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But the news also comes amid a deep market rout, where every day brings more news of crimes swept under the rug during a FOMO-fueled market rally during the COVID-19 pandemic. Three Arrows Capital, once thought to be one of the smartest hands in the game, was found to have built its fortune largely by rehypothecating borrowed funds. Alex Mashinsky, the founder and former CEO of bankrupt “neo-bank” Celsius Network was just found to be siphoning funds from Celsius.

Figures like Mashinsky and Three Arrow’s Kyle Davies and Su Zhu promised much more than Kardashian and other celebrity crypto endorsers ever could. Celsius’ unofficial slogan was “unbank yourself.” The Three Arrows hedge fund operated under the idea of an unstoppable crypto “supercycle.” Until the firm imploded under the weight of bad debt and bad bets, Celsius promised users returns of up to 20% on their crypto holdings. Mashinsky is now selling T-shirts saying, “Unbankrupt Yourself.”

None of this is to excuse the role celebrities have played in pumping tokens like EthereumMax. Kardashian posted about the project on Instagram, where she had about 220 million followers at the time, making it the "financial promotion with the single biggest audience reach in history,” according to outgoing U.K. Financial Conduct Authority (FCA) Chairman Charles Randell. Further, Gen Zs’ second-most popular source for financial advice is social media, according to a CreditCards.com survey.

EMAX, as insiders call it, dropped over 99% after Kardashian’s plug (though the token spiked after her settlement, proving the adage that no press is bad press). Investors posting on the project’s Telegram and Discord have complained about slow progress on the EthereumMax’s project’s roadmap, which involved an online casino and social token that would get holders into red carpet events.

Kardashian’s fans have made the case that the Insta-famous influencer is being scapegoated. Her post, while failing to disclose the amount was paid, noted it was “not financial advice” and included the “#ad” hashtag. Several other celebrities, including boxer Floyd Mayweather, also endorsed EthereumMax. Nearly every celebrity-endorsed non-fungible token (NFT) project is in the doldrums, a Bloomberg investigation found. And figures like Ben McKenzie have built a second career as the movie industry’s superego, shaming his peers’ crypto offerings.

“When a group of entrepreneurs is raising money from the public and the public’s anticipating a profit, they need … full, fair and truthful disclosure. And that’s the core bargain in our capital markets,” Gensler said. He added, specifically, Kardashian violated Section 17(b) of the Securities Act, a law passed in the 1930s. He has convincingly argued elsewhere that all cryptos operate like stocks or bonds, and should fall under his agency’s remit.

"The SEC is always looking for a way to get the message out to the public ,and when somebody with the kind of following that Kim Kardashian has makes a blunder like this … that's a layup for the SEC,” Lisa Braganca, former SEC enforcement branch chief, said Tuesday on CoinDesk TV.

So what happens next? It’s likely Kardashian’s settlement will have a chilling effect on the industry, but it cannot stop the crypto “trash moat.” It’s simply too easy to fork an open-source project, pay for a little engagement or market making and sell the dream of “disruption” to retail investors. Kardashian, who did not admit wrongdoing, is participating in the SEC’s ongoing investigation into EthereumMax.

It’s also worth noting Kardashian’s settlement comes just weeks after the social media juggernaut announced she’s moving into the private equity industry. Her new business, called Skky Partners, which she co-founded with former Carlyle Group partner Jay Sammons, was touted by some financial pundits as a smart move at the time given the reality television star’s massive social influence.

Skky is looking to invest across the media, hospitality, luxury and digital commerce industries. But one thing is for sure: At least for the next three years as part of her SEC bargain, Kardashian likely won’t be promoting crypto. There was a time when Kardashian thought she could trade in a little social capital for financial gain, by promoting what in retrospect was clearly a rug pull. There’s a steeper barrier for her now, but maybe not for others.

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Daniel Kuhn is a features reporter and assistant opinion editor for CoinDesk's Layer 2. He owns BTC and ETH.

Daniel Kuhn is a features reporter and assistant opinion editor for CoinDesk's Layer 2. He owns BTC and ETH.