Kim Kardashian, Floyd Mayweather and the wild ride of a crypto token

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“Do you like cryptocurrencies ????” 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 sponsorships from dozens of other famous celebrities. But a week after the message, the tokens had lost 70% of their value. The price never recovered.

Now, these losses are at the center of a lawsuit that Kardashian and other celebrities, including boxer Floyd Mayweather and former NBA player Paul Pierce, have helped inflate the price of the token as part of a scheme that has enriched his supporters at the expense of ordinary investors.

“The emerging cryptocurrency industry is sadly plagued by so-called influencers promoting incredibly risky investments for their audience and fans,” said John Jasnoch, partner of Scott and Scott, who led the class-action case.

The complaint, filed in a U.S. federal court earlier this month, also alleges that EthereumMax supporters used the inflow of money from Kardashian followers to sell a significant amount of tokens at a profit, pocketing their earnings. before the price plummeted.

Kardashian’s lawyers declined to comment on the claims. EthereumMax, which has no affiliation with the Ethereum network itself, said: “We dispute the allegations and can’t wait for the truth to come out.”

Mayweather and Pierce did not respond to requests for comment.

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

“More and more retail investors. . . I am [trading] based on very non-traditional information journeys, both on Reddit and Instagram. These things are brand 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 mainstream executives are the main source of information. Nearly 60% of respondents have turned to these high-profile people for cryptocurrency information more than half the time.

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

Many other famous people have publicly joined the cryptocurrency 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 cryptocurrency marketing agency, who asked not to be named, adding that sponsorships are often pushed by talented agents who will offer deals that include posts from many of their clients. high profile, with price tags ranging from tens of thousands to millions of dollars. “You have not seen nothing yet.”

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

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

Mayweather, who showcased EthereumMax alongside other brands on its shorts in a major bout in June against YouTube megastar Logan Paul, said in an interview at the time that the logos alone brought in a total of $ 30 million.

Chris Chapman, partner of the Mayer Brown law firm, noted that “for now, the promotion of most crypto assets is only lightly guarded.” But both the US Securities and Exchange Commission and the UK Financial Conduct Authority have issued warnings about influencers promoting cryptocurrencies.

Messages from celebrities about crypto assets are often followed by strong increases in trading activity, analysts say. On May 26, Pierce posted “@espn I don’t need you. @ethereum_max I have made more money with this cryptocurrency in the past month [sic] I did it with all of you in one year. The next day, the trading volumes in dollar terms in EthereumMax quintupled.

From May 24-29, the price of EthereumMax jumped more than 1,400% to a record high. By June 12, the price had dropped 85%. Two days later, Kardashian shared her message on Instagram. Trading activity jumped in its wake and the price eventually plummeted.

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

But despite the rapidly growing popularity of crypto products, regulation on their promotion lags behind that of traditional financial instruments in many jurisdictions. Gary Gensler, president of the SEC, this summer called cryptocurrencies the “Wild West” urging Congress to give its agency additional powers to protect investors.

At the same time, consumer understanding of cryptocurrency investments has followed their growing importance. 70% of cryptocurrency traders have invested in tokens for less than a year, the Cardify survey found, and 85% reported not fully understanding their holdings.

The influence extends beyond the cryptocurrency markets. According to a survey by U.S. financial app M1 Financial, more than half of U.S. Generation Z and millennial investors said they made investment decisions based on information viewed on social media.

As regulators scramble to keep up with the market hype, cryptocurrency market participants predict that the role of celebrity endorsers will only grow, particularly given the growing popularity of non-fungible tokens (NFTs) whose value is often based on desirable approvals.

The world of sport, already heavily involved in brand partnerships, has been particularly linked to the promotion of cryptocurrencies. Basketball player Stephen Curry, American football stars Tom Brady and Rob Gronkowski, golfer Tiger Woods, and NFL top pick Trevor Lawrence are among the athletes with affiliations with specific tokens or cryptocurrency exchanges. Lawrence signed a multi-year deal with the Blockfolio cryptocurrency management app prior to the draft and received part of his cryptocurrency signature bonus.

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

“You have a situation where many [crypto] players have a lot of money in space, “said Pam Kramer, chief marketing officer of Voyager, the crypto partner of Gronkowski and Cassill. She noted that the company’s top priority was educating customers and said that the sponsorships of the celebrities weren’t their primary marketing focus. But for the industry, “someone who already has a following is a way to connect with your audience, or to build and deepen a connection with your existing audience,” he said.

Whitehead of Cornell Law School said celebrities with these widespread following may not always be well advised when it comes to highly profitable endorsement deals with potential legal consequences. “It is a question of whether the people who are giving the advice are familiar with securities law,” he said.

“It’s one thing to approve a lipstick and another thing to promote a crypto asset,” Whitehead said. Given the profile of the EthereumMax promoters and this lawsuit, he said, “let’s hope people understand now.”

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