Next Gen Investing

Why Kim Kardashian’s $1.26 million SEC settlement over her crypto promo matters—especially for millennial and Gen Z investors

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Reality TV superstar Kim Kardashian has agreed to pay $1.26 million to the Securities and Exchange Commission for promoting a crypto asset without disclosing that she had been paid to do so.

The charges against the billionaire influencer stem from a post she made in June 2021 promoting EthereumMax's crypto asset, according to the SEC. The post included the hashtag "#ad" and a link to EthereumMax's website, which provided instructions on how to buy the digital tokens.

Kardashian is cooperating with an ongoing investigation and has agreed not to promote any crypto securities for the next three years, according to an SEC press release. "She remains willing to do whatever she can to assist the SEC in this matter," a lawyer for Kardashian said in a statement.

The case highlights an important lesson for investors: Be wary of trusting financial advice you come across on social media, especially when it comes to cryptocurrency.

"This case is a reminder that, when celebrities or influencers endorse investment opportunities, including crypto asset securities, it doesn't mean that those investment products are right for all investors," Gary Gensler, chairman of the SEC, said in a news release.

Although the SEC encourages investors to conduct their own research rather than "rely on paid endorsements from artists, sports figures, or other icons," many young investors do turn to social media for financial advice.

In fact, social media is millennials' and Gen Zs' second most popular source for financial advice behind friends and family, according to a 2021 survey. And 52% of those who get financial advice from social media find the advice to be trustworthy, the survey says.

"So few people fully understand crypto and its opportunities and risk," says Chen Arad, chief operating officer of Solidus Labs, a crypto-native risk monitoring and market surveillance company.

"Many look for signals from celebrities and people they trust, and for an influential figure to promote something without disclosing it's basically an ad/sponsorship that was paid for, is simply misleading," Arad says.

That's one reason why disclosures are so important. It's also crucial for investors to understand which assets make sense for their specific financial situation.

"It's easy for those hyping cryptocurrency on social media, whether legitimately or not, to stoke interest with the promises of riches and flashy cars from trading," says James Royal, principal reporter at Bankrate. "But the reality is that most traders end up losing big money, a fact that can be impossible to discern amid the glitz."

When it comes to making investment decisions, be sure to thoroughly research the asset you're considering. It may also make sense to work with a certified financial planner or other advisor, rather than relying on advice from social media.

"Investment decisions should not be based solely on an endorsement by a promoter or other individual," the SEC warns. "Celebrities who endorse an investment often do not have sufficient expertise to ensure that the investment is appropriate."

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