Unlawful Touting I FALSE ADVERTISING I FRAUD I ENDORSEMENT I SOCIAL MEDIA FRAUD – Kim Kardashian Settles Claim for Unlawful Touting of Crypto Currency and Digital Token for $1.26 Million

Unlawful Touting I FALSE ADVERTISING I FRAUD I ENDORSEMENT I SOCIAL MEDIA FRAUD – Kim Kardashian Settles Claim for Unlawful Touting of Crypto Currency and Digital Token for $1.26 Million

October 19, 2022

By: Diana Adjadj, Esq.

Unlawful Touting? What is Touting?

Touting is a practice in which an individual or legal entity encourages and persuades investors and other members of the public to invest or buy a particular security. In most instances the touting usually comes from a party with a strong interest in seeing the security price rise, such as a large shareholder, the issuing company itself or a third party with a financial interest.

Unlawful Security Touting

Unlawful touting is the promoting of stocks and more traditional securities to attract buyers.  According to nasdaq, “tout” is “to promote a security in order to attract buyers”.

Fraudulent Transactions

Fraud is the underlying legal theory prohibiting touting of securities. Specifically, the behavior being curtailed by such statues and regulations is the use of interstate commerce for purposes of fraud or deceit. The US code regulating interstate transactions makes it illegal to employ any scheme or device that would defraud a purchaser of securities. Similar to consumer protection laws, the fraudulent interstate transactions code section, makes it illegal for sellers, or those with an interest in the security, from profiting, making money or obtaining property by means of any untrue statement of a material fact or omission of material information as to mislead purchasers or potential purchasers.

Fraudulent Transactions and Social Media

Under this code section that fact that an “influencer” or “social media influencer” is being paid to promote a security or a digital token, the law finds this to be a material fact. By omitting the fact that the influencer is being paid for the advertisement, the code section and relevant case results seem to conclude that this constitutes fraud under the applicable code section.

Fraudulent Interstate Transactions

15 U.S. Code § 77q – Fraudulent Interstate Transactions, discusses touting in what is known as the Securities Act of 1933 Section 17 (b), specifically it unlawful for any person to tout a stock without disclosing the nature and substance of any consideration, whether present or future, direct or indirect, received from an issuer, underwriter, or dealer.

The relevant section of the securities action of 1933 Section “(b) Use of interstate commerce for purpose of offering for sale. It shall be unlawful for any person, by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, to publish, give publicity to, or circulate any notice, circular, advertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received, directly or indirectly, from an issuer, underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof.”

Crypto Touting

With the rise and creation of crypto currency, the securities act of 1933 expanded to crypto currency and digital tokens.

Social Media and Unlawful Touting: Most Recently Kim Kardashian Settled a Case with The Securities and Exchange Commission for $1.26 Million for the Unlawful Touting of Crypto on Social Media

Kim Kardashain was offered $250,000 to publish an Instagram post advertising EMAX digital tokens. Kardashian published the post and included a link to the EthereumMax website, providing potential investors with instructions on how to invest in the digital token. In her post, Kardashain failed to disclose that this was an advertisement or that she was being paid for the promotion of the digital coin.

Per the SEC’s press release: “The SEC’s order finds that Kardashian violated the anti-touting provision of the federal securities laws. Without admitting or denying the SEC’s findings, Kardashian agreed to pay the aforementioned $1.26 million, including approximately $260,000 in disgorgement, which represents her promotional payment, plus prejudgment interest, and a $1,000,000 penalty. Kardashian also agreed to not promote any crypto asset securities for three years.” –  SEC Charges Kim Kardashian for Unlawfully Touting Crypto Security

False Advertising in Social Media

Social media is a major platform for marketing and advertisements and often is a lucrative line of revenue for influencers.  However, with this line of revenue influencers have been quick to make false advertisements in hopes of earning quick profits, leading to civil liability in the realm of fraud and false advertising. With the rise of these allegations the FTC has been quick to respond by publishing an endorsement guideline aimed at social media influencers directly. The endorsement guideline serves as an outline as to what disclosures social media influencers must make when advertising a product or service and what statements should not be made, disclosure of which can lead to liability for fraud or false advertising.

Social Media Advertisement and Social Medial Endorsement

Social media influencers have not only created a platform for their own name recognition; however, they have simultaneously created a platform to market various products and services. Through advertisements, product placements and endorsements, influencers have created a lucrative revenue stream. The FTC has created an endorsement guide to help influencers follow regulations, understand their responsibilities and avoid liability for fraud or false advertising.

SEC’s Cautionary Warning to Investors

“The mission of the Securities and Exchange Commission (SEC) is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation. The SEC strives to promote a market environment that is worthy of the public’s trust.” On October 13, 2022 SEC Chair Gary Gensler cautions investors not to make investment decisions based solely on the recommendations of a celebrity of influencer.

Influencer’s Responsibility to Avoid Fraud and False Allegations

Social media influencers have an obligation to make certain disclosures when advertising certain products and services. When an influencer has a financial interest or a relationship whether it be an employment, family or personal, in products or services they are promoting, this interest must be disclosed. These disclosures must be clear and simple so that people can easily understand the influencers’ interest in the product. Aside from making the aforementioned disclosures there are other limitations on social media advertisements including:

    • Influencers cannot comment or discuss their experience with a product or service they have not tried. Such statements are false and give way to a fraud claim
    • Influencers cannot falsely claim that a product or service was great when they did not have a good experience with the product or service
    • Influencers cannot make claims that a product or service can help with a health condition or other issue if there is no scientific proof to support that conclusion. Making false claims regarding a product or service gives was to an action for fraud or false advertising

Fraud and Disgorgement of Fraudulently Acquired Gains:

Consumer Protection please see the links below:

Fraud and False Advertisement please see the links below: 

For Fraud and Breach of Fiduciary Verdicts in California: Our articles discussing Fraud verdicts in California are included below:

Fraud and False Advertisement Damages please see the links below:

Recovery from the Victims Of Corporate Fraud Compensation Fund of California: For articles discussing damages:

False Advertising? Unlawful Touting?

    Diana Legal