Celebrity Endorsements of Cryptocurrency Under Scrutiny

By Hira Waheed

15 August 2023

A recent ruling in a case brought by investors in a defunct crypto token has raised a red flag for celebrities and social media influencers, including reality star Kim Kardashian. The ruling serves as a cautionary message that if you are paid to promote a risky investment to your followers, you may be held liable when they act on your advice.
Celebrity Endorsements of Cryptocurrency Under Scrutiny

Judge Refuses to Dismiss Unfair Competition

U.S. District Judge Michael Fitzgerald of Los Angeles has denied the dismissal of unfair competition claims filed against Kim Kardashian, boxing champion Floyd Mayweather, and NBA hall-of-famer Paul Pierce. The claims allege that the celebrities engaged in deceptive promotion of EthereumMax (EMax) tokens during the cryptocurrency boom of 2021.
The judge found that the amended complaint, spanning 162 pages, adequately alleged that the celebrities were profiting from endorsements at the expense of their fans. They were accused of endorsing an investment opportunity with no legitimate business plan.

Deceptive Practices Exploiting Dedicated Followers

The celebrities' promotional efforts were specifically targeted towards their "already-dedicated followers," who were considered particularly vulnerable to their messages. The defense's argument that the plaintiffs could not reasonably rely on social media posts by celebrities for investment decisions was rejected by Judge Fitzgerald.
Unscrupulous Practices
The judge stated that hyping a crypto token without disclosing payment or lacking a legitimate basis for believing in the token's value constitutes an unscrupulous and unfair practice. He referred to the "EMax charade" as an example of cryptocurrency scams advertised through social media.

Evaluating Unfair Competition Claims

Judge Fitzgerald cited precedent in the 9th U.S. Circuit, emphasizing that courts evaluating unfair competition claims must balance the alleged harm to consumers against the utility of the defendants' conduct. The plaintiffs' lawyers convincingly argued that the celebrity endorsements exemplified deceptive securities promotion in the form of cryptocurrency scams.

Insufficient Defense

The celebrity defendants failed to present any arguments that could tip the balance in their favor. The judge concluded that they did not provide a single benefit or valid reason for allowing celebrities to endorse unvetted products without disclosure.
The judge noted that the plaintiffs' lawyers will eventually have to explain precisely how each defendant's deceptive promotion affected the value of EMax tokens. This may prove challenging but does not hinder the case from moving forward at this preliminary stage.

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