Marketing assets

Kim Kardashian’s $1 Million Fine Could Impact Uniswap, SushiSwap, and Other Decentralized Exchanges

The United States Securities and Exchange Commission (SEC) has fined famed Kim Kardashian $1 million for fail disclose that she was paid $250,000 to promote Ethereum Max (EMAX), which the agency classifies as an unregistered security. In January, Kardashian, professional boxer Floyd Mayweather and basketball star Paul Pierce were sued by investors in the same cryptocurrency who alleged they were misled by separate messages the trio shared with millions of followers on social networks.

None of the listed defendants, including the alleged creators of Ethereum Max, have officially responded to Forbes‘ requests for comments.

The celebrity cases are just the start of the potential fallout. An SEC statement shows that the same investigator who looked into the regulator’s high-profile battle with Ripple Labs, Mark R. Sylvester of the Crypto and Cyber ​​Assets Unit, is co-leading a team of at least eight people examining Ethereum Max issues. . Kardashian will help with the investigation, the statement said, in exchange for being allowed to settle down without admitting or denying the charges. While the SEC has confirmed Forbes the investigation is active, he declined to provide further comment.

Among the possible fallout from the investigation involving the ignominious crypto, which has fallen 99% from its all-time high and is now worth $12 million, are questions about the ramifications for the creators of the currency, the people who pay for the servers that support the software, the exchanges that allowed the asset to be traded, and other defendants listed in the class action.

“EMax, as far as I know, is a cryptocurrency that promises access to things like clubs and has celebrity partnerships who have promoted it,” says law firm partner Preston Byrne Brown Rudnick, where he specializes in crypto regulation. “If I’m a regulator, I’ll research who arranged these partnerships and promotes and sells the coin to find where I can apply leverage.”

Miraculously, the asset actually jumped 40% within hours of the announcement, perhaps proving there is no bad publicity. But it begs the question, where would one go to buy an unregistered title widely known to be a scam – if one were so inclined? The following is not investment advice.


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A search for where to buy the assets results in a high-profile answer and some tricky possibilities. The first hit is something called Coinbase Wallet. Unlike the $15 billion major exchange Coinbase, where users can recover lost passwords from the centralized service if they let it keep custody of the assets, Coinbase Wallet is a self-custodial service, which means that users are responsible for their own private keys, and therefore have more freedom to purchase various assets.

CoinMarketCap, a subsidiary of Binance that tracks asset prices, lists only two exchanges where the asset can be found, both of which are decentralized: Uniswap and SushiSwap. Unlike centralized exchanges, which operate like traditional businesses, anyone can trade on a decentralized exchange, and theoretically they cannot be shut down as long as the underlying blockchain is functioning.

While a spokesperson for Uniswap Labs says the company has no control over the open-source protocol, which anyone can rely on, it sometimes blocks assets on the web app that they built using the same protocol. “We are working on the details of the news,” the spokesperson said. “But generally block tokens subject to SEC actions on our web application.”

Interestingly, in November 2018, the SEC filed a cease and desist order against the creator of the decentralized exchange EtherDelta and issued a statement claiming that “an entity that provides an algorithm, running on a computer program or on a smart contract using blockchain technology, as a means of gathering or executing orders could be to provide a trading facility. EtherDelta creator Zach Coburn colonized with the SEC without admitting or denying the charges that it operated as an unregistered stock exchange.

Last month, the Commodity Futures Trading Commission (CFTC) launched two separate actions against the creators of Decentralized Autonomous Organizations (DAOs) for failing to adopt a know-your-customer program under a secrecy law. banking. One against the executives of bZeroX, LLC., which was settled, and the other against Ooki DAO, which the CFTC said operated the same software. For this ongoing case, the CFTC served the documents on the creators of Ooki in an online forum.

While the non-profit Electronic Frontier Foundation has raised concerns that holding authors accountable for how others use their code could be a violation of free speech, the CFTC ruling is currently in effect. This could be bad news for creators of decentralized exchange trading assets that are considered securities. “DeFi and DAO code on GitHub is unquestionably First Amendment protected expression,” says Byrne. “Where developers run into trouble is when they start doing more than that, for example, holding large token balances and driving the outcome of governance votes.”

Following a strategy adopted by many crypto projects, the then unnamed creators of EthereumMax released a white paper detailing their vision for the currency. Unlike most white papers, the authors were identified only as “a group of crypto enthusiasts, investors, developers, and marketers.” Dated October 2021, the document, which uses an academic form that appears to barely veil a marketing scheme, expresses surprise that so-called meme tokens designed to capture interest in ideas have not performed better. on the stairs.

“We couldn’t understand why these huge meme communities weren’t supporting serious crypto projects, at least not with the passion and word of mouth that we’ve seen catapult some meme tokens,” according to the white paper. “Was it the lack of marketing? Were the concepts of real utility too complex? Not exciting enough? Were the projects unrelated to the average person? What follows is nearly 50 pages attempting to answer these questions.

Notably, in a disclaimer at the top of the whitepaper, the authors state that the document has been reviewed by ICOLAW, PC, a Los Angeles-based law firm, and that they do not guarantee the “accuracy of the whitepaper.” . Forbes tried to contact packaged compliance ICOLAW, part of Los Angeles-based Shumaker Mallory LLP to confirm if it was involved and got no response.

Other potential fallout is that Kardashian, Mayweather and Pierce were sued in a class action lawsuit filed in January in the US District Court for the Central District of California alleging they helped EthereumMax inflate artificially the price of the token. The “executive defendants” in the case, who appear to be the people who the plaintiff claims created Ethereum Max, are named Steve Gentile, Giovanni Perone and Justin French, none of whom have responded to Forbes‘ requests for comments. Law firm Scott + Scott, representing the plaintiffs, also did not respond for comment.

Although Kardashian was included in the SEC charges settled today, Mayweather and Pierce were not, opening yet another door for further fallout. In a separate 2018 incident, Mayweather settled SEC charges, without admitting or denying guilt, alleging he was paid to promote initial coin offerings (ICOs) where assets issued on a blockchain were sold, supposedly to raise capital to build an operation.

“Most DEX systems, especially those on Ethereum, rely to some degree on a centralized infrastructure to operate – someone, somewhere is running a web server so users can easily interact with them,” says Byrne. “These points of articulation are where we can expect the regulation hammer to fall first and hardest.”

Although EthereumMax is down more than 90% from its peak, leading many to describe it as a pump and dump system, a roadmap on the asset’s site claims that progress are continuing, with plans for an NFT marketplace expected to be completed as soon as this month.