Kim Kardashian attends the CFDA Fashion Awards in Manhattan, Latest York City, November 7, 2022.
Andrew Kelly | Reuters
A federal judge on Wednesday dismissed a proposed class motion lawsuit by investors against the founders of the cryptocurrency EthereumMax, in addition to celebrity endorsers including Kim Kardashian and boxer Floyd Mayweather Jr. over their promotion of the cryptocurrency on social media.
Investors who bought EMAX tokens alleged that they had suffered losses after taking the word of the celebrity influencers concerning the value of the crypto. The suit claims the defendants engaged in a conspiracy to artificially inflate the worth of the EMAX tokens.
Judge Michael Fitzgerald wrote that he recognized that the lawsuit’s claims raised legitimate worries about “celebrities’ ability to readily persuade thousands and thousands of undiscerning followers to purchase snake oil with unprecedented ease and reach.”
“But, while the law definitely places limits on those advertisers, it also expects investors to act reasonably before basing their bets on the zeitgeist of the moment,” wrote Fitzgerald, of the Central District of California.
The judge found that the plaintiffs’ allegations were insufficiently backed, especially “given the heightened pleading standards” for fraud claims, in keeping with his ruling in U.S. District Court in Los Angeles.
Along with Kardashian, Mayweather and former Boston Celtics star Paul Pierce, the defendants within the case included Steve Gentile and Giovanni Perone, the co-founders of EthereumMax, and Justin French, a consultant and developer for the cryptocurrency, court documents state.
Fitzgerald in his ruling said he would allow lawyers for the plaintiffs to refile their suit after amending a few of their claims under a variety of the statutes cited in the unique criticism, which included the Racketeer Influenced and Corrupt Organizations Act, also referred to as RICO.
“We’re pleased with the court’s well-reasoned decision on the case,” Michael Rhodes, a lawyer for Kardashian, told CNBC.
The dismissal got here weeks after investors in fallen crypto exchange FTX filed a class-action lawsuit against former FTX CEO Sam Bankman-Fried and celebrity advertisers for the corporate, amongst them NFL superstar Tom Brady, for allegedly overstating the worth of the crypto tokens in promotional messaging.
And the ruling got here two months after Kardashian agreed to pay $1.26 million, and never to advertise cryptocurrency for 3 years, to settle claims by the SEC for her failure to reveal a $250,000 payment touting EthereumMax on her Instagram account.
Fitzgerald in his ruling Wednesday said the EthereumMax lawsuit reflects a broader conflict surrounding celebrity and influencer promotional schemes.
“This motion demonstrates that virtually anyone with the technical skills and/or connections can mint a recent currency and create their very own digital market overnight,” Fitzgerald wrote in his dismissal.
Investors sued EthereumMax and its celebrity advertisers in January after a slew of influencers began snagging sponsorships to advertise cryptocurrencies to their thousands and thousands of social media followers.
Kardashian’s Instagram post in June 2021 had written, “Are you guys into crypto??? This is just not financial advice but sharing what my friends told me concerning the Ethereum Max token.”
Her post included “#ad” at the underside, indicating she had been sponsored. Nevertheless it didn’t disclose her $250,000 payment from EthereumMax.
Mayweather promoted EMAX at a boxing match and a big Miami bitcoin conference in June 2021.
But by January, the cryptocurrency had lost 97% of its value.
Fitzgerald at a hearing last month indicated he was inclined to dismiss the case.
Bloomberg News, in an article about that hearing, said that an attorney for the plaintiffs within the suit asked the judge to permit him to revise the suit’s racketeering claims to indicate how the statements by the celebrity defendants harmed the investors.
“If plaintiffs had known the true facts related to the promoters’ financial interest within the tokens, and that they were being paid to shill these tokens, they would not have paid as much for the tokens as they did,” the attorney, John Jasnoch, told Fitzgerald, in keeping with a transcript cited by Bloomberg.