A federal judge has dismissed a class action lawsuit against celebrities, including Kim Kardashian, for promoting the cryptocurrency EthereumMax.
Earlier this year, investors filed the lawsuit against the cryptocurrency’s founders as well as celebrities that had endorsed it. In addition to Kardashian, these celebrities included boxer Floyd Mayweather and former Boston Celtics star Paul Pierce.
The suit claimed that promotions from these celebrities had fooled investors into purchasing the crypto at an inflated price. It also accused the defendants of engaging in a conspiracy to artificially inflate the cryptocurrency’s value.
Judge Throws the Case Out
After some earlier consideration, Judge Michael Fitzgerald of the Central District of California decided to throw the case out. He explained that the plaintiffs’ allegations ultimately lacked sufficient backing, considering the higher standards for claims of fraud.
Fitzgerald acknowledged the genuine issues the lawsuit raised about the undue influence of celebrity promotions in dubious financial schemes. This is particularly true with cryptocurrencies, which he said “anyone with the technical skills” could create and “market overnight.” But while the law does limit these types of actions, Fitzgerald argued that investors also bear a certain responsibility for themselves.
The federal judge said that the plaintiff’s lawyers could refile their suit after amending some of their claims. One had requested permission to rework the suit’s racketeering claims to demonstrate how the defendants’ promotions had harmed their clients.
Kardashian Promotion Issues
The plaintiffs filed the lawsuit in Jan., as cryptocurrency prices dropped from last year’s peaks and EMAX lost 97% of its value. Earlier, in June 2021, Kardashian had posted a promotion for EMAX tokens on her Instagram page. Inquiring whether her followers were into crypto, she related that friends of hers had told her about EMAX.
While she included “#ad” in the post to show it was a paid promotion, she neglected to reveal that she received $250,000 in compensation for it. In Oct., the Securities and Exchange Commission (SEC) fined Kardashian $1.26 million for her failure to disclose this payment.
According to the federal regulator, Kardashian settled the charges by agreeing to pay $250,000, the amount she received for the promotion, in addition to $100,000 in interest, and a $1 million penalty, for a total of $1.26 million.
Troubles Mount for Crypto Promoters
The dismissal of this class action lawsuit comes just weeks after another high profile case involving crypto fraud. Investors filed a class action suit against FTX founder Sam Bankman-Fried and celebrities who promoted the crypto exchange. These include star athletes Tom Brady, his wife Gisele Bündchen, Stephen Curry, and Naomi Osaka. Through their endorsements, the lawsuit claims that these parties had engaged in promoting unregistered securities.
State regulators in Texas launched a similar investigation, probing whether these endorsements violated local securities laws. Authorities in Texas acknowledged they had started cooperating with other state securities regulators on the issue of these celebrity endorsements.
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