Promoting crypto online? You’re going to need a longer hashtag for that, says SEC Chairman Gary Gensler.
Following the SEC’s charges against Kim Kardashian for promoting the EthereumMax (EMAX) token online, Gensler clarified the rules governing influencers promoting crypto online The influencer was hit with a $1.26 million fine today for allegedly failing to disclose the $250,000 she was paid to publish the Instagram post shilling a cryptocurrency called EthereumMax. Gensler said today that though Kardashian used a hashtag under the post to clarify that the ad was paid for, it still fell afoul of SEC regulations as she did not also clarify “the amount she was paid and the nature of it.”
The reason she needed this additional detail was that she was promoting a security, a refrain that Gensler has sung throughout the year. The chairperson went on to recommend that listeners brush up on Section 17(b) of the Securities Act, making multiple references to the section. The section states that is unlawful to publicize a security by any means without disclosing the “consideration received or to be received, directly or indirectly, from an issuer, underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof.” He also went on to say that under some laws in different areas, it “might be appropriate to just say hashtag ad” if you are “advertising perfume or you’re advertising vacation homes or anything else on the Internet,” but that this “isn’t the case with security laws.” When Gensler was questioned about whether this type of legislation is being equally applied in all instances, the chairman emphasized that this was indeed the case. When Matt Damon’s 2022 Superbowl advertisement for Crypto.com was highlighted, Gensler said he wasn’t going “get into any other specific circumstances, but it always depends on the facts and the circumstances and the anti-touting provisions of the acts, 17(b).”
Kardashian’s post drew ire from regulators beyond the U.S too.
Outgoing UK Financial Conduct Authority (FCA) chair Charles Randell called the influencer’s post the “financial promotion with the single biggest audience reach in history” in 2021, referencing the star’s over 300m Instagram followers. Gensler has a history of pushing for the application of traditional securities laws to new situations involving cryptocurrency. Recently, he went as far as saying that proof-of-stake cryptocurrencies could be securities, as these arguably pass the Howey test.
An asset is said to pass the Howey test if it involves an investment of money with a common enterprise, with the expectation of profit to be derived from the efforts of others.