Ethereum max (EMAX) has been surrounded by controversy ever since it was launched in May 2021. It is an altcoin that uses Ethereum’s blockchain ledger to record sales and transactions.
It is important to note that Ethereum max has lost 95.3% of its value since June 2021, when Kim Kardashian promoted it. This means that if you invested $100 following Kardashian’s post about the token, your investment would be worth about $5 today!
Kim Kardashian promoted Ethereum Max (EMAX) and acknowledged that she was being paid for it. However, she didn’t tell her followers the exact amount she received for the promotion. The SEC took action against her and fined her $250,000 for promoting unregistered security.
Soon after, the community broke out in a debate.
“Should it be required to disclose the amount received to promote an investment opportunity?”
The FTC’s Regulatory Policies
Celebrities and social media influencers have made a handsome amount of money from such promotions and endorsements of services and products ranging from clothing to beauty products, supplements, and medications.
The Federal Trade Commission (FTC) sees to the regulation of endorsements by requiring various acts and disclosures. The acts and disclosures include looking at crucial information like whether a financial relationship exists between the endorser and the company, whether a post was paid for, and even requiring an endorser to personally try a product before endorsing it. However, the FTC has never gone so far as to require endorsers to disclose the amount they were paid to promote a product, as in this case.
In this case, the “product” is an investment opportunity falling under the regulation periphery of the SEC. Kardashian had included disclaimers such as “#Ad” and “this is not financial advice,” as required by the FTC’s Endorsement and Testimonial Guidelines.
However, all this is not sufficient under the SEC’s regulations as it also required Kardashian to disclose the exact amount, i.e., $250,000 that she was paid by EthereumMax (EMAX) to “tout” the token.
SEC Cracks Down On Kim Kardashian
Some will argue that Kardashian’s disclosure in the particular ad is enough and that the SEC’s anti-touting provision’s requirement to disclose the exact amount of consideration is senseless. One may also like to believe that disclosing that she was paid $250,000 to promote the token would not have any material effect on her followers in their decision to invest or not.
However, whether or not a particular disclosure is material to a potential investor is a question that the investor in the situation can best answer. The SEC has to ensure that potential investors receive as much information as possible to assist them in their decision-making to safeguard the investing public.
The FTC recently proposed an amendment to its Endorsement Guidelines on Digital Advertising to address the growing influencer market. Section 255.5 is of much relevance as it
“Disclosure of Material Connections,” which proposes “business, family, or personal relationships; monetary payments; the provision of free or discounted products or services to the endorser; early access to the product; or the possibility of winning a prize, of being paid, or of appearing on television or in other media promotions.”
With such financial disclosures, people might refrain from buying or investing in products if they realize their favorite influencers/celebrities are doing it only for the “cheque.”
SEC Chairman Gary Gensler also warned the general public that celebrities’ incentives aren’t typically aligned with consumers’ best interests. In the SEC’s press release, Gensler highlighted that celebrities and influencers must be mindful that the law requires them to make heightened disclosures to protect individuals who may look up to them for “financial advice.”
Many celebrities, who vouch for certain products and services, do not have sufficient expertise to ensure that the investment is appropriate and complies with U.S. securities laws. This gives power to celebrities such as Kardashian to influence millions of individuals, prompting them to make uninformed decisions solely based on their admiration and loyalty for the celeb.
Kardashian’s $1.6 million settlement is a reminder that the SEC will not shy away from pressing charges against those with great influence for unlawfully touting crypto securities to ensure greater regulation. The investing public should also look with wide eyes before investing.
Additionally, Altcoins like EMAX lack stability like the older cryptocurrencies such as Ether and Bitcoin. EMAX is a risky investment because once investors stop buying or start selling, the token’s value can quickly plummet.
Written by: Qadir AK
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