Here's How Kim Kardashian's EthereumMax Promotion Cost Her $1.26 million

Celebrities beware: The SEC says paid crypto promotion should be transparent.

A lot of crazy things happened in crypto last year. From price jumps of over 5,000% that made people into crypto millionaires overnight to headline-grabbing scams and everything in between, it felt like anything could happen in the crypto world. But now some of those crypto chickens are coming home to roost, as celebrity influencer Kim Kardashian is discovering the hard way.

Kim Kardashian's $1.26 million fine

The SEC charged the prominent socialite and media personality for posting about EthereumMax (EMAX) without telling her followers that she'd been paid for the promotion. In June last year, Kardashian shared the following on Instagram: "Are you guys into crypto???? This is not financial advice but sharing what my friends just told me about the EthereumMax token!"

The text did contain the hashtag #AD, but according to the SEC charges, celebs need to be more transparent. In a press release announcing the charges, SEC Chair Gary Gensler said, "Ms. Kardashian's case also serves as a reminder to celebrities and others that the law requires them to disclose to the public when and how much they are paid to promote investing in securities."

Kardashian will pay a total of $1.26 million -- a $1 million fine plus the $250,000 fee she received, along with interest. She is not allowed to promote any cryptocurrencies for the next three years and has agreed to cooperate with the investigation. Kardashian has not admitted any wrongdoing and a statement from her lawyer said that the superstar wanted to put the matter behind her and avoid a "protracted dispute."

EthereumMax -- not to be confused with Ethereum (ETH) or Ethereum Classic (ETC) -- says it set out to mix the popularity of a meme token with the utility of a more serious token. As we pointed out last June, the project raises a lot of red flags. Some, such as the lack of a whitepaper, have since been resolved. Even so, the project has struggled to gain traction since its launch and questions remain about its long-term viability.

EthereumMax is currently trading at over 99.5% less than its all-time high, according to CoinMarketCap data. The token spiked in value in May and June last year on the back of celebrity endorsements, including Kardashian's. Kardashian wasn't the only celeb to support EthereumMax. Former boxer Floyd Mayweather and former NBA player Paul Pierce also jumped on the EMAX bandwagon. Mayweather went so far as to promise to accept EMAX as payment for a boxing match.

All three celebs were named in a lawsuit earlier this year over their support for EthereumMax. Ryan Huegerich, who brought the case, claims that misleading promotional activity and celebrity endorsements caused him, along with other investors, to buy the token at artificially inflated prices.

Do your own research

When Kardashian posted about EthereumMax, we were approaching the height of last year's crypto craziness. New investors could be forgiven for thinking they could do no wrong, as crypto project after crypto project soared. EMAX itself shot up over 2,000% in a matter of weeks. However, buying crypto because a celebrity promoted it on social media is unlikely to end well.

Only you know your financial situation, but it's likely to be quite different from that of Kim Kardashian. You will have different financial goals, a different appetite for risk, and different amounts of investable money. This is your money we're talking about. Before you buy crypto or any other type of investment, do your own research and understand how it fits with your financial situation.

In terms of crypto, look at the whitepaper, the management team, the number of tokens there are and how they are distributed. Think about whether the project has utility, how it will generate money, and how it compares to its competitors. See whether it's listed on any top crypto exchanges and how active the community is on social media. There are no guarantees, but solid projects are more likely to survive a crypto winter and potentially perform well in the coming decade or more.

Bottom line

With over 20,000 cryptocurrencies on the market, it's tempting to follow the lead of high-profile figures. However, this is a relatively new and unregulated market and it isn't always clear if those celebrities have been paid to endorse a specific product. Don't take their word for it -- take the time to investigate the project for yourself. Knowing why you bought a specific asset can also help you manage your portfolio further down the line.