Kim Kardashian Fined: The Price of Blurring the Line of Advertising

On October 3rd, the United States Securities and Exchange Commission (SEC), the agency in charge of enforcing federal securities laws and regulating financial and electronic markets, announced through a official statement charges against the businesswoman and model Kim Kardashian for the large sum of 1.26 million dollars. This, for having illegally promoted cryptocurrencies on their social networks.

The SEC reported that the publication posted by the businesswoman on her Instagram account, in which she has 331 million followers, did not make it clear that it was an advertisement for EMAX tokens, a cryptoactive security product offered by the company EthereumMax, for which he received 250,000 dollars. This, despite the fact that the post had the hashtag '#ad' at the bottom.

Faced with the charges imposed, the celebrity agreed, in addition to paying the fine, not to participate in the promotion of crypto investments for the next 3 years and to cooperate with the investigation into this and other similar cases that are ongoing. "Kardashian's failure to disclose this compensation violates Section 17(b) of the Securities Act, which makes it illegal for any person to promote a security without fully disclosing the receipt and amount of such consideration from an issuer," explained the Commission.

The regulatory entity has taken advantage of this fact to set a precedent and generate an alert against the content that is consumed at an increasingly accelerated rate thanks to the influence of influencers and social networks on the market. "This case is a reminder that when celebrities or influencers endorse investment opportunities, including crypto-asset securities, it does not mean that those investment products are suitable for all investors," said SEC Chairman Gary Gensler.

For his part, the director of the SEC Enforcement Division, Gurbir S. Grewal, indicated that, “Federal securities laws are clear that any celebrity or other person who promotes a crypto asset value must disclose the nature, the source and amount of compensation she received in exchange for the promotion, Ms. Kardashian did not disclose."

Read also: Criticism of Khloé Kardashian: Has Surrogacy Gotten out of Control?

Other cases of famous investors

With this case, Kim Kardashian joins a long list of celebrities who have found it expensive to support cryptocurrencies. Celebrities such as boxer Floyd Mayweather, musician DJ Khaled, and actor Steven Seagal have been fined for illegally promoting crypto securities. According to Gensler, "with regard to cryptocurrencies" there have been a significant number of violations in the last five years in particular.

Before her, other celebrities such as Gwyneth Paltrow, Matt Damon or the American tycoon Elon Musk, have also promoted cryptocurrencies without also mentioning their risks, and although they did not lose money (as far as is known), they did lose credibility and were the target of strong criticism. Actress Reese Witherspoon was also criticized when cryptocurrencies began to lose value this year, as in December 2021 she had tweeted: "Cryptocurrencies are here to stay."

Advertising vs Influencer Recommendations. The thin line of the digital world

This case highlights the strong influence that celebrities and influencers generate in the consumption habits of today's society. The world of e-commerce and internet advertising continues to gain strength and is here to stay. Knowing how and why the buyer makes his decisions is now more important than ever for brands and companies to be present and generate an impact on their potential customers.

The consumer is exposed in his daily life to a multitude of advertising messages through the various platforms. Social networks have become the main tool for influencers and the brands they represent. However, there is a certain gap when it comes to understanding the power that these have in the consumption of their followers.

In this regard, various studies have analyzed the role of the influencer in the context of online advertising, since, in many cases, the barriers have been broken as to which companies and which products are likely to immerse themselves in the world of influencer marketing, and under what parameters. Within these investigations, a study carried out every year by the company IAB Spain stands out, the world's largest association of communication, advertising and digital marketing, which says that 40% of people state that social networks have influenced their final purchase of products and services, especially women and those under 40 years of age and 43% declare that the comments influence their final purchase decision.

Market regulators have been warning for years about the importance of explicitly identifying when a publication is advertising as such, and the example of Kim Kardashian is an example of what happens when this is not done. The IAB Spain study also adds that the correct development of the sector requires clear regulation, with standards that are adopted by all companies, it is necessary to promote communication, marketing and digital advertising strategies, in which the consumer is taken into account and his or her rights.