On June 14, 2021, Kim Kardashian promoted a little-known crypto company called EthereumMax to her 225 million Instagram followers. “Are you guys into crypto?” she asked.
A week later, the price of EthereumMax, or EMAX , had fallen 50% and the volume of trade in the token had dropped by nearly 75%. The price of the coin never recovered, so anyone who followed Kardashian’s advice lost a bundle.
The reality show star’s post was the last of several celebrity endorsements EMAX had relied upon to drive up the price of the coin they had released in May 2021, according to a class-action lawsuit filed in federal court in California by numerous investors.
The suit claims that the company’s founders made big profits after cashing out as prices jumped following online endorsements by Kardashian, former NBA star Paul Pierce and retired boxing champ Floyd Mayweather.
The investors say they only bought EMAX after learning of it through the publicity brought by Pierce, Mayweather and Kardashian’s endorsements.
“The misleading promotions and celebrity endorsements were able to artificially increase the interest in and price of the EMAX Tokens during the relevant period, causing investors to purchase these losing investments at inflated prices,” the suit argues.
Attorneys for EthereumMax’s co-founders, Steve Gentile and Giovanni Perone, didn’t immediately respond to calls seeking comment.
The suit also names Kardashian, Mayweather and Pierce as co-defendants. All three have filed motions to have them removed from the suit, arguing they had no role in how the token was issued, sold or managed. The founders of EthereumMax have also sought to have the case dismissed. A judge has yet to rule on any of the motions.
On Monday, Kardashian reached an agreement with the Securities and Exchange Commission to pay a $1.26 million fine related to her EMAX endorsement, which the agency said failed to properly disclose that she had been paid $250,000 to promote.
Kardashian neither admitted to nor denied the findings, and her lawyer, Michael Rhodes, said in a statement that she fully cooperated with the SEC investigation and that the SEC agreement allows her to “move forward with her many different business pursuits.”
The action shines a light on what had been a relatively common marketing ploy for cryptocurrency issuers seeking attention for their tokens. The SEC has moved to clamp down on the practice, similarly fining celebrities like Steven Seagal, DJ Khaled, and even Mayweather previously, for failing to make clear they had been paid to promote various crypto currencies.
John Jasnoch, the attorney who filed the class-action suit, said the SEC’s move went a long way in supporting his clients’ case.
“We see the SEC order as validation of the claims in the EthereumMax litigation, particularly those against defendant Kardashian. Promotors who mislead investors should be held accountable,” he said.
In the class-action suit against EMAX, Kardashian’s attorney has argued that his client had no financial stake in the company, and that her role in the matter amounted to two Instagram posts that she had marked as being advertisements.
Her attorney didn’t immediately return a call for comment.
Lawyers for Mayweather and Pierce have similarly argued that their clients had no actual roles in how EMAX was operated and, aside from collecting an endorsement fee, had no financial connection to the company. Their attorneys also didn’t immediately return calls for comment.
The suit noted that Mayweather had engaged more extensively with EMAX during the run-up and promotion to his exhibition match with internet influencer Jake Paul in June 2021, not long after the coin was launched. EMAX was at one point marketed as the only cryptocurrency that would be accepted to buy tickets to the fight, the suit said.
The lawsuit also cited a tweet by Pierce in which he claimed he made more money in a month investing in EMAX than he had working as a commentator for ESPN.
The suit also cited a survey conducted by the firm Morning Consult, which found that 19% of people polled who had been aware of Kardashian’s promotion of EMAX actually purchased the token.