Kim Kardashian and Floyd Mayweather Jr are being sued for allegedly misleading investors by promoting cryptocurrency tokens as part of an alleged ‘pump and dump scam’.
A lawsuit, filed in the Los Angeles federal court on January 7, claims the reality star and boxing champion – among others, including former NBA player Paul Pierce – touted tokens sold by Ethereum Max, or EMAX, in order to boost its price and make themselves a profit ‘at the expense of their followers and investors.’
Figures show the value of the cryptocurrency plummeted by a whopping 98 per cent in July – just weeks after the stars had advertised it to their hundreds of millions of combined followers.
An advert posted by Kim Kardashian in June reached one in five people in the US alone, and three in 10 cryptocurrency owners, according to data intelligence company Morning Consult.
The suit was filed by a New York resident who bought EMAX tokens and lost money – and is proposed as a class-action lawsuit, open to anyone who allegedly lost out after purchasing the tokens from mid-May to late June 2021.
The complaint claims: ‘The company’s executives, collaborating with several celebrity promoters … made false or misleading statements about Ethereum Max through social media advertisements and other promotional activities.’
According to the document, Kim Kardashian promoted Ethereum Max in a June 2021 post on Instagram (pictured), when she had some 250 million followers. ‘Are you guys into crypto?’ she wrote in the post, followed by the disclaimer ‘this is not financial advice’, before adding that she wanted to share ‘what my friends just told me’ about the Ethereum Max tokens
‘While Plaintiff and Class members were buying the inappropriately promoted EMAX Tokens, Defendants were able to, and did, sell their EMAX Tokens during the Relevant Period for substantial profits.’
MailOnline has contacted EMAX for comment.
According to the document, Kim Kardashian promoted Ethereum Max in a June 2021 post on Instagram, when she had some 250 million followers.
‘Are you guys into cryptocurrency?’ she wrote in the post, followed by the disclaimer ‘this is not financial advice’, before adding that she wanted to share ‘what my friends just told me’ about the Ethereum Max tokens.
Kim Kardashian included the #AD hashtag to show the post was a paid advertisement, the lawsuit said.
Miss Kardashian, 40, did not say how much she was paid for the advert but a 2019 court filing revealed she can earn up to £361,000 for a single Instagram post.
Meanwhile, Mayweather promoted Ethereum Max on his boxing trunks during a widely viewed exhibition fight with YouTube star Logan Paul in June, among other times.
The boxing match was streamed on Showtime and had up to 650,000 pay per view (PPV) buys in the US alone.
Representatives for Kim Kardashian and Floyd Mayweather did not immediately respond to requests for comment.
Ethereum Max, the company, was also named in the lawsuit.
‘The deceptive narrative associated with the recent allegations is riddled with misinformation about the Ethereum Max project,’ Ethereum Max said in a statement.
‘We dispute the allegations and look forward to the truth coming out.’
The lawsuit is seeking restitution and disgorgement of profits by the defendants.
It alleges: ‘In plain terms, Ethereum Max’s entire business model relies on using constant marketing and promotional activities, often from ‘trusted’ celebrities, to dupe potential investors into trusting the financial opportunities available with EMAX Tokens.’
Former NBA player Paul Pierce also promoted EMAX in a Twitter post on May 26.
The lawsuit says that on that same day, the cryptocurrency was publicized as the ‘exclusive Cryptocurrency accepted for online ticket purchasing’ for Showtime’s Floyd Mayweather vs. Logan Paul fight.
The document says that by mid-July, EMAX had crashed to a record-low of $0.000000017 per unit.
Meanwhile, it alleged, the defendants ‘marketed the EMAX Tokens to investors so that they could sell their portion of the float for a profit.’
One expert branded the situation facing EMAX as ‘mind-boggling’, adding that he always advises celebrities to only enter into ad deals with companies they have a genuine affinity for.
Darren Heitner, Professor of Sports Law at the University of Florida, told MarketWatch: ‘In my years of representing athletes and celebrities, I constantly advise them that, beyond the legal language in any contract, they should always be sure that they genuinely have an affinity for the product or service that they are endorsing.
‘It is rarely beneficial for someone to enter into an inauthentic relationship with a brand, particularly if that person has accumulated significant wealth throughout his/her career.
That is what makes a situation like that concerning Ethereum Max so mind-boggling.’
Pump and dump scams work by a person or a group of people buying into an asset – such as a cryptocurrency – when its price is low.
They then create a buzz around the asset by spreading positive news, which is mostly made up.
As more people buy into the asset, its value soars, becoming ‘pumped’, allowing the originators of the scam to sell their stake to newcomers at a substantial profit.
But because they own such a large percentage of the shares, the stock’s price plummets and all the new buyers lose out big time.
Pump and dump scams are outlawed by The Securities Act of 1933, which specifically states that it is a criminal offence ‘to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact.’
It can also be considered an act of wire fraud when the alleged fraudsters use communication methods such as email, direct messaging, social media platforms, or direct phone calls to pump up the stock’s value.
Regulators fear that cryptocurrency tokens are too risky for most savers – and that some are scams.
Some experts fear celebrities are selling ‘delusions of quick riches’, including Charles Randell, chairman of the Financial Conduct Authority.
Speaking of Ethereum Max at the Cambridge International Symposium on Economic Crime, in September last year, Mr Randell said: ‘I can’t say whether this particular token is a scam.
‘But social media influencers are routinely paid by scammers to help them pump and dump new tokens on the back of pure speculation.’
He added: ‘Some influencers promote coins that turn out simply not to exist at all.
‘There are no assets or real-world cash flows underpinning the price of speculative digital tokens, even the better-known ones like Bitcoin…
‘We simply don’t know when or how this story will end, but – as with any new speculation – it may not end well.’
He said that swathes of people had ‘lost savings by being lured into the crypto-bubble with delusions of quick riches, sometimes after listening to their favourite influencers, ready to betray their fans’ trust for a fee’.
Watchdogs have previously sounded the alarm about cryptocurrencies such as Bitcoin because they exist solely online and their value is not related to any underlying asset.
Newer tokens such as Ethereum Max are deemed even riskier since they do not have a ‘white paper’ guide which informs users about how they operate. Few details are known about their developers.
Cryptocurrency also fall outside most regulations, leaving buyers vulnerable.
Mr Randell added: ‘To be clear… If you buy them, you should be prepared to lose all your money.’
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