Kim Kardashian, Floyd Mayweather and the Mad Rush of a Crypto Token

Kim Kardashian, Floyd Mayweather and the Mad Rush of a Crypto Token

“Do you like crypto??” Kim Kardashian asked in an Instagram post last summer, drawing the attention of her 250 million followers to a new coin known as EthereumMax.

The reality TV star’s post may have made financial market history with its reach, surpassing cryptocurrency promotions and endorsements from dozens of other high-profile celebrities. But a week after the message, the tokens had lost 70% of their value. The price never recovered.

Graph showing the rise and fall of EthereumMax and how it was affected by advertising campaigns published by celebrities

Now, those losses are at the center of a lawsuit that claims Kardashian and other celebrities, including boxer Floyd Mayweather and former NBA player Paul Pierce, helped inflate the token’s price as part of a scheme that enriched its backers at the expense of ordinary investors.

“The emerging cryptocurrency industry is unfortunately plagued by so-called influencers who promote incredibly risky ‘get-rich-quick’ type investments to their audiences and fans,” said John Jasnoch, partner at Scott and Scott, who brought the class action.

The lawsuit, filed in US federal court earlier this month, also alleges that EthereumMax backers used the influx of money from Kardashian subscribers to sell a significant amount of tokens for a profit, pocketing their gains before the price crashes.

Kardashian’s attorneys declined to comment on the allegations. EthereumMax, which has no affiliation with the Ethereum network itself, said, “We dispute the allegations and look forward to the truth coming out.”

Mayweather and Pierce did not respond to requests for comment.

The lawsuit comes at a time when the explosion in retail during the pandemic has increased the influence of celebrity endorsements on financial markets.

“More and more individual investors. . . are [trading] based on very non-traditional channels of information, whether on Reddit or Instagram. These things are all new,” said Charles Whitehead, a professor at Cornell Law School.

An October survey by consumer research firm Cardify found that for cryptocurrency holders, celebrities and traditional leaders are the top source of information. Nearly 60% of respondents turned to these personalities for information about cryptocurrencies more than half the time.

And celebrities have become an increasingly important source of validity for volatile tokens. In a document published by EthereumMax in October, the brand listed its celebrity and influencer marketing as one of the token’s main strengths.

Many other well-known people have publicly joined the crypto fray as digital asset markets have exploded. Actors Matt Damon, Lindsay Lohan and Steven Seagal, and director Spike Lee are among those with crypto partnerships.

“It’s considered easy money,” said an executive at a crypto marketing agency, who asked not to be named, adding that endorsements are often pushed by talent agents who will come up with deals. including posts from many of their high-profile clients, with prizes ranging from tens of thousands to millions of dollars. “You haven’t seen anything yet.”

Floyd Mayweather showcased EthereumMax alongside other brands on his shorts in a major fight in June against YouTube megastar Logan Paul.

Floyd Mayweather with an EthereumMax logo on his shorts during a fight against YouTube star Logan Paul. © Jasen Vinlove-USA TODAY Sports/Reuters

Mayweather, who featured EthereumMax alongside other brands on his shorts in a major fight in June against YouTube megastar Logan Paul, said in an interview at the time that the logos alone brought in a total of 30 millions of dollars.

Chris Chapman, a partner at law firm Mayer Brown, noted that “at the moment, the promotion of most crypto assets is only lightly controlled.” But the US Securities and Exchange Commission and the UK’s Financial Conduct Authority have issued warnings about influencers promoting cryptocurrencies.

Celebrity posts about crypto assets are often followed by a surge in trading activity, analysts say. On May 26, Pierce posted, “@espn I don’t need you. @ethereum_max i made more money with this crypto last month so [sic] I did it with all of you in a year. The next day, dollar trading volumes in EthereumMax increased fivefold.

From May 24-29, the price of EthereumMax jumped over 1,400% to an all-time high. By June 12, the price had fallen by 85%. Two days later, Kardashian shared her Instagram post. Trading activity surged in its wake and the price eventually fell.

UK regulators have already flagged Kardashian’s messages related to EthereumMax. In a September speech, FCA chief Charles Randell said Kardashian’s Instagram post “could have been the financial promotion with the biggest audience in history.”

But despite the growing popularity of crypto products, regulation of their promotion lags behind that of traditional financial instruments in many jurisdictions. SEC Chairman Gary Gensler this summer called crypto the “Wild West” as he urged Congress to give his agency additional powers to protect investors.

At the same time, consumer understanding of crypto investments has lagged behind their growing importance. Seventy percent of crypto traders have invested in the tokens for less than a year, according to the Cardify survey, and 85 percent said they don’t fully understand their holdings.

The influence extends beyond the crypto markets. More than half of Gen Z and Millennial American investors said they made investment decisions based on information they saw on social media, according to a survey by the American financial app M1Financial.

As regulators rush to catch up on the market hype, crypto market participants predict that the role of celebrity endorsers will only grow, especially given the growing popularity of non-fungible tokens ( NFT) whose value is often based on desirable endorsements.

The sports world, already heavily involved in brand partnerships, has notably been linked to the promotion of cryptocurrencies. Basketball player Stephen Curry, American football stars Tom Brady and Rob Gronkowski, golfer Tiger Woods, and NFL first draft pick Trevor Lawrence are among the athletes affiliated with specific tokens or crypto exchanges. Lawrence signed a multi-year deal with crypto management app Blockfolio before the project, and received a portion of his signing bonus in cryptocurrency.

Both Curry and Brady serve as “ambassadors” for crypto exchange FTX, the company that paid $135 million for the naming rights to the Miami Heat basketball team’s stadium, and received awards. shares in the company. Nascar star Landon Cassill became the first driver to be paid entirely in cryptocurrency in July.

“You have a situation where a lot of [crypto] players have a lot of money in the space,” said Pam Kramer, chief marketing officer of crypto brokerage Voyager, Gronkowski and Cassill’s crypto partner. She noted that the company’s main priority was educating customers and said celebrity endorsements were not their main marketing focus. But for the industry, “someone who already has an audience is a way to connect with the audience, or build and deepen a connection with the existing audience,” she said.

Whitehead of Cornell Law School said celebrities with those large followings might not always be well-advised when it comes to highly lucrative endorsement deals with potential legal ramifications. “It’s about whether the people giving advice know about securities law,” he said.

“It’s one thing to endorse a lipstick and another thing to promote a crypto asset,” Whitehead said. Given the profile of EthereumMax promoters and this lawsuit, he said, “hopefully people will now get the hang of it.”