Keeping Up With The Class Actions: Plaintiffs Allege Kim Kardashian, Others Liable For Misleading Class Of Investors About New Cryptocurrency

• Published date: 01 February 2022
• Subject Matter: Litigation, Mediation & Arbitration, Technology, Class Actions, Fin Tech
• Law Firm: Winston & Strawn LLP
• Author: Jeffrey J. Amato, Yoav E. Gaffney and Marjon Y. Momand

Kim Kardashian gave what some experts are calling the most impactful piece of financial advice in history. But is she liable to a putative class of investors who took her advice and lost money?

A new class action lawsuit brought in the Central District of California, alleges that on June 14, 2021, Kim Kardashian posted to her Instagram:

"Are you guys into Crypto???? This is not financial advice but sharing what my friends just told me about the Ethereum Max Token! A few minutes ago Ethereum Max burned 400 trillion tokens - literally 50% of their admin wallet giving back to the entire E-Max community."

Kardashian's ability to reach audiences is nearly unmatched. Her Instagram account, with 282 million followers, is the eighth-most followed account on the service. And 19% of respondents to a poll who heard about Kardashian's post invested in EthereumMax, a little-known cryptocurrency launched in 2021. But only one day later, plaintiffs contend, EthereumMax lost 98% of its value, with people who invested based on Kardashian's post left holding the bag. Kardashian is alleged to have been paid between $300,000 and $1 million for her post by the creators of the cryptocurrency.

Trends in Enforcement

Over the last several years, interest in cryptocurrencies has ballooned, believed in part to be due to the pandemic, the growing ease of investing in cryptocurrencies through platforms such as Robinhood and Coinbase, their public promotion by public figures like Elon Musk, and the extraordinary growth in value.

Cryptocurrencies are also uniquely susceptible to "pump-and-dump" schemes, in which influential individuals recommend a cryptocurrency to unsophisticated investors, only for the promoters to then offload their own tokens at inflated prices. Cryptocurrencies are easily transferred, liquid, and their value - like stocks and bonds - fluctuates directly and immediately in response to supply and demand. Little-known cryptocurrencies - much like penny stocks - are particularly susceptible, due to the limited number of players in the market.

Interest in regulation of cryptocurrencies has grown as well, with the SEC, the FTC, and other regulatory bodies wading into the new industry. But the SEC's jurisdiction is not limitless over cryptocurrencies, due in part to the fact that not all "cryptocurrencies" are securities, including the well-known Bitcoin.^1>

In addition to the regulators, private enforcement has also grown. Over the last two years, plaintiffs have begun...