During a class-action lawsuit in the Central District of California on January 7, 2022, Kim Kardashian and Floyd Mayweather were sued over the promotion of EthereumMax (EMAX), a cryptocurrency token. The celebrities were named as co-defendants with the cryptocurrency creators, and are accused of bilking millions from investors.
What does EMAX stand for?
EMAX was launched in May 2021. Afterward, the creators of the token announced they were partnering with Floyd Mayweather, such as acting as the exclusive cryptocurrency of a boxing match between Mayweather and Logan Paul, and providing free items such as Mayweather-signed boxing gloves in exchange for purchases of EMAX. EMAX trading volume increased tenfold in two days after the press release, according to class allegations.
Both Kardashian and Mayweather personally promoted EMAX in the months that followed, leading to further publicity and sales of EMAX. For example, Mayweather allegedly promoted EMAX at a cryptocurrency conference and during his boxing match with Logan Paul, causing the trading volume of EMAX to increase from $15.7 million to $24.5 million in the course of three days.
Similarly, Kardashian promoted EMAX on her Instagram account stating that “A few minutes ago Ethereum Max burned 400 trillion tokens — literally 50% of their admin wallet giving back to the entire E-Max community.” The complaint described how the advertising was disseminated to Kardashian’s 250 million followers, and a survey found that as many as 21% of American adults and nearly half of cryptocurrency owners saw the ad, and that 19% of respondents who had heard about the ad invested in EMAX. Although EMAX rose 1,370% from its initial price, it dropped 98% one month after Kardashian’s post.
The Allegations Against the Defendants
As alleged in the complaint, Kardashian and Mayweather, as well as EMAX’s creators, made false and misleading statements about investors’ ability to earn money from EMAX. The complaint also faults Kardashian and Mayweather for failing to appropriately disclose their paid relationship with EMAX, alleging that Kardashian’s promotion disclosure was “tucked in the far bottom right of the post” and that Mayweather never disclosed any payments for his promotion of EMAX.
Plaintiffs maintain that these activities induced uninformed investors to believe in EMAX and artificially inflate its price, allowing EMAX creators to extract significant profits for themselves when they sold tokens which caused plaintiffs to lose significant amounts of money when the price fell. All of these activities are alleged to violate California consumer protection laws.
THE BOTTOM LINE
- Companies that deal with cryptocurrency are subject to several federal laws and may be regulated by a number of federal agencies, including the Securities and Exchange Commission. Though the cryptocurrency market has matured in recent years, there are still plenty of risks, and agencies, media platforms, and influencers must ensure that they are selecting their cryptocurrency partners wisely and complying with all applicable laws.
- In light of this case, companies should ensure that their endorsers, spokespersons, and influencers comply with applicable laws and regulations.