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David Klein Featured In WSJ: What To Know About (Legally) Marketing Crypto Assets – Fin

The SEC settled with Kim Kardashian over her promotion of a
cryptocurrency. Here is how influencers and marketers can stay
above board with crypto messaging.

Kim Kardashian’s $1.26 million settlement with the Securities and
Exchange Commission
over a cryptocurrency promotion highlighted
the risk that even experienced marketers and influencers can face
as they pitch similar assets in a nascent, fluid sector.

Ms. Kardashian was facing allegations that she didn’t
sufficiently disclose her $250,000 payment to hype EMAX tokens on
her Instagram account. The post in question included the label
“#AD,” but Ms. Kardashian should have revealed how much
she was paid and by whom, the SEC said.

If she had been peddling everyday consumer goods, the
“ad” label arguably might have been enough for the
Federal Trade Commission, which has typically handled matters
involving influencers and their endorsements, some experts

The SEC maintains a different standard for those pushing
anything it considers a security. The “anti-touting”
provision has been part of the securities laws for decades and is
intended to help investors know when a person has a conflict of
interest that might affect their recommendation to buy or sell a

The cryptocurrency boom has attracted many investors, including
less experienced ones, raising questions about what is appropriate
when marketing these types of assets.

Many heavily promoted initial coin offerings went nowhere, among
other activities that caused consumers to lose their investments,
said David Klein, a managing partner at marketing law firm Klein
Moynihan Turco LLP. “The SEC has been tasked with getting
involved and making sure that this kind of thing does not continue
to happen” without regulatory consequences, he said.

Here’s what marketers should know about the SEC’s latest
move and what it means for influencers.

How can brands and influencers stay above board?

When it comes to crypto, brands and the influencers they work
with should err on the side of caution and be clear when an
influencer has been compensated for their endorsement, whether
it’s monetarily or otherwise, said Lartease Tiffith, executive
vice president for public policy at the Interactive Advertising
Bureau, a digital media and marketing trade association.

“It’s better to overdisclose,” he said. “Even
if you think that you may be in a gray area, so to speak, it’s
better to just be clear.”

Mr. Klein said that social-media influencers and companies
should get legal advice early in the marketing planning to ensure
compliance with all applicable regulations.

“The fact that something’s happening on social media
does not mean that the old rules of the land don’t apply. They
do,” he said.

Why did the SEC handle this?

The SEC can get involved when promotions involve securities,
which can bring much bigger stakes for consumers than a typical

“There’s a lot more risk for the general consumer than
buying a dress or buying a diet product that’s being sponsored
by celebrities online,” said Fara Sunderji, a partner at law
firm Dorsey & Whitney LLP. “You obviously could lose a lot
of money buying any type of product. But these are a lot more
protected, sensitive areas where we want to make sure that people
know what they’re doing.”

The SEC said as it announced its settlement that promoting
securities must meet specific requirements.

“The federal securities laws are clear that any celebrity
or other individual who promotes a crypto asset security must
disclose the nature, source, and amount of compensation they
received in exchange for the promotion,” said Gurbir Grewal,
director of the SEC’s division of enforcement, in the

When is something a security?

The SEC has warned that virtual tokens or coins sold in initial
coin offerings may be securities, and that anyone who offers and
sells securities in the U.S. must comply with federal securities

Christopher Gerold, a partner in the crypto practice at law firm
Lowenstein Sandler LLP, said the SEC uses a certain test to see
what falls in that definition. Mr. Gerold was the chief of the New
Jersey Bureau of Securities in 2018 when it took action against a
crypto asset touted by the actor Steven Seagal, in part because
payments to Mr. Seagal weren’t disclosed.

Considering whether digital assets are securities involves
deciding whether something includes an investment contract, a test
met when it involves investment of money in a common enterprise
with a reasonable expectation of profits to be derived from the
efforts of others.

But the subject has brought disputes.

“Over time, especially in the crypto space, we’ve seen
[people] try to call it different things to avoid the securities
laws,” Mr. Gerold said.

Some involved in the crypto industry argue that bitcoin and some
stablecoins are commodities, he added. Federal agencies and
congressional committees have disagreed over which regulator should have
oversight of cryptocurrencies
by variously casting them as
commodities or securities.

“There’s a lot of debate still to this—What is a
security? What is a commodity? What is something else?” Mr.
Gerold said.

Are stars in Super Bowl commercials exposed?

Cryptocurrency companies such as FTX and Crypto.com have tapped
celebrities from Larry David to LeBron James to tout their
companies in ads, including in commercials that ran during this year’s Super

Just appearing in a TV commercial doesn’t mean those
messages are necessarily any more protected than a short
social-media post. Mr. Gerold said it can depend on what the stars
are saying in these ads. If they are making more general statements
about the platforms, that is considered to be different than giving
investment advice about a specific security.

“You run into proper trouble when you’re promoting an
issuer of a security,” he said.

Photo by Jievani Weerasinghe on Unsplash

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

Read More: David Klein Featured In WSJ: What To Know About (Legally) Marketing Crypto Assets – Fin

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