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A week ago, the United States Securities and Exchange Commission accused Kim Kardashian of touting on social media a crypto asset security offered and sold by EthereumMax without disclosing the payment she received for the promotion. According to the SEC, Ms. Kardashian “agreed to settle the charges, pay $1.26 million in penalties, restitution, and interest, and cooperate with the Commission’s ongoing investigation.”
It may come as no surprise that two days later, California’s Department of Financial Protection and Innovation issued an investor alert titled “Social Media Finfluencers – Who [sic] Should you trust?” The alert warns that the “DFPI authorizes investment advisers [sic], they do not license finfluencers or the crypto asset products and services they often promote. These products and services are currently uninsured or unregulated and are considered very high risk.”
However, advertisements of crypto assets may be subject to DFPI regulation if found to be securities under the California Corporate Securities Act of 1968. In the case of Ms. Kardashian, the SEC took the position that the relevant crypto asset qualified. federal definition of a security. As explained in this article from about five years ago, the DFPI’s Securities Advertising Rule requires in part that if an advertisement contains an endorsement or recommendation of securities by a public figure, express or implied (e.g. , by the inclusion of such person’s identity, photograph or name in the advertisement), full disclosure must be made of any compensation or other benefit given or promised by the issuer or any person related to the issuer to such person , either directly or indirectly. 10 CCR § 260.302.
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