The SEC is bullying Kim Kardashian, and it could chill the influencer economy

The SEC is bullying Kim Kardashian, and it could chill the influencer economy

On Oct. 3, the Securities and Exchange Commission announced that Kim Kardashian had settled an allegation that her promotion of “a crypto asset security offered and sell by EthereumMax without disclosing [of $250,000]] for it.” This charge highlights the growing liability that “influencers” face due to an activist SEC that has failed establish regulatory clarity.

Influencers being forced to leave the United States

Jacob Robinson, a legal scholar and host on the Law and Code podcast, addressed the agency’s actions against Kardashian. He noted that the net-positive was “that” this likely leads to less shilling from celebs with zero knowledge of the project and are only receiving a large payday.

Social media platforms have made it easy for content creators and influencers to emerge and work with brands to promote their products and services. Unfortunately, there are downsides to the “creator economy”. Influencers are often paid by companies to support their influence.

Although this privilege is sometimes misused, it’s not something that influencers do differently than corporations when they place paid advertisements in the media or on television. Board members can also join to receive a retainer to promote their organization and share their networks. Are media outlets equally responsible for failing to disclose that they have accepted payment for an advertisement in a major newspaper or magazine like Vogue or The New York Times? It is clear that they are not. If they could not accept paid advertising opportunities, the media’s business model will quickly collapse.

Related: Biden’s anemic cryptocurrency framework was nothing new

So why is influencers treated differently and can they be held accountable and targeted by federal agencies? Think about the car market. If a salesperson sells a vehicle to a customer that is later recalled, or has other defects, will they be singled out by a regulator? As we’ve seen with Toyota, Volkswagen and other companies over the years, the car company may be liable but the employee is generally exempt from such liability.

Kardashian’s SEC action could alienate and suppress other members of the creator community. Although she “can afford” the $1.26million fine, which is a little over $1 million more than what she earned, many content creators don’t make six-figure salaries every year. This action could also push content creators from the United States to countries with more favorable policies.

Definition of securities and liability

SEC adheres to an old Supreme Court ruling, SEC. J. Howey Co. from 1946. This led to what is now called the “Howey Test.”

However, the test was implemented in a completely different economic system than ours. Many projects that involve the release fungible tokens fall under the security category, regardless of how liberal one may be with this definition. Other projects, particularly those that do not involve fungible tokens, fall into a grayer zone. Many NFT projects don’t have any expectation of profit for their holders, but instead emphasize perks and exclusive access at events, classes, or deals.

Related: Prepare for the feds’ indictment of NFT traders

Although Kardashian was criticized for her promotion EthereumMax (EMAX), the SEC took action against her without disclosing she received payments. However, it was arguably a simpler, more straightforward case. The case illustrates a significant challenge that influencers in the Web3 economy will face if they have regulatory risk against them for promoting other projects even if it is just a post on social media.

Others have a very different approach to Web3. The United Arab Emirates, for example, has stated that it would prefer that its economic success be measured by its “gross Metaverse Product” and not the traditional gross domestic product which has been the standard for cross-country comparisons of productivity. Entrepreneurs and startups have found the UAE to be a great place, along with other countries like Singapore.

Kardashian’s story could be the same for others

Web3 allows for greater transparency and accountability through the blockchain, if regulators worry that influencers abuse their authority by promoting products or services without disclosing receipts of compensation. Influencers might be able to view their digital wallets so that they can see their remuneration and make their purchases public. Although privacy-preserving blockchains are still necessary as everyone’s private lives shouldn’t be public, the blockchain offers transparency and accountability that is more important.

Web3 allows content creators to get paid for their content. Web3 does not rely on central entities for brand partnerships and brand deals. Artists can transform their audiences into communities that interact with their content through NFTs.

Many influencers could have experienced what Kardashian did. Although regulatory actions without sanctions are not likely to have much impact — and sometimes such penalties are necessary to indicate that an agency is serious — a different strategy would have been for Kardashian to reach out and mobilize support from a group of influencers in order to establish stronger and more transparent norms regarding the promotion of products and services, especially crypto projects that could potentially be classified as securities. This collaborative approach would help crypto enthusiasts establish shared norms, best practices and a more cooperative approach.

Christos Makridis, an entrepreneur and economist, is a professor. Living Opera is his chief operating officer and chief tech officer. He also holds appointments at Stanford University and Columbia Business School. Christos holds doctorates from Stanford University in management science and economics.

This article is intended for informational purposes only and is not meant to be or should be interpreted as investment or legal advice. These views, thoughts, and opinions are solely the author’s and do not necessarily reflect the views or opinions of Cointelegraph. This piece was not paid for by any of these projects.

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Amy Jimenez– Services My name is Amy Jimenez, and I am the main writer behind the"" for the ground-breaking and most fragile bits of knowledge into the most recent news in the services sector. I began my voyage of work as an autonomous investment advisor. I had around 4 years of involvement in this field. I am a free soul so; my energy for investigating the world has taken me to the countries over the globe and allowed me to report for a part of the best news affiliations. At present, I am a full-time manager as experienced in the account and began to utilize my capacities.

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