December 3, 2023

On Monday, the Securities and Exchange Commission announced that it is fining social-media influencer and businesswoman Kim Kardashian $1.26 million, without revealing how much she was paid for the ad.

The Kardashians are no stranger to headlines, but this case takes a close look at the emerging challenges related to “fininfluencers” — and, more broadly, it’s a timely reminder that there are many people out there for their investment cues. Look at social media.

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The impact of social media on investment decisions goes well beyond the meme stock frenzy that first hit the markets early last year. In fact, a quarter of retail investors say that the information they gather on social media is “extremely important” to where they put their money.

according to this Recent Global Report of the World Economic Forum.

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While financial advisors and wealth managers were the most commonly cited sources (47%) as an extremely important source for investment decisions, 34% of retail investors considered what they learned from online content – ​​including websites, blogs, podcasts and videos – as “extremely” rated as. important.”

But start with the Kardashians.

,Nearly 34% of retail investors surveyed said that what they learned from online content was ‘extremely important’.,

— Online survey of 9,000 respondents of the World Economic Forum

Kardashian posted on her Instagram META about EthereumMax and its EMAX token,
feed, but it did not disclose the $250,000 payment from issuers for publishing the post, SEC regulators wrote in their ruling on Monday.

Kardashian’s June 2021 post had the hashtag “#ad” at the bottom, but Regulators allege She was still illegally promoting the token. Kardashian, who neither admitted nor denied the allegations, paid a $1.26 million fine to settle the matter.

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Her attorney, Michael Rhodes, said in a statement that Kardashian was fully cooperating with the case and reached an agreement to move forward “with her many different business pursuits.” (When Kardashian posted, she had 225 million Instagram followers; on Monday, she had 331 Instagram followers.)

Retail investors are left with another reminder they need to proceed with caution when hearing about an online money making opportunity. This is true with or without the bold-faced name associated with the promotion.

SEC Chairman Gary Gensler said in a CNBC interview on Monday that others have come under scrutiny for illegally checking cryptocurrencies. He counted people like boxer Floyd Mayweather, hip-hop impresario DJ Khaled and actor Steven Seagal among those ranks.

“When celebrities or influencers endorse investment opportunities, including crypto asset securities, it does not mean that those investment products are right for all investors. We encourage investors to consider investing potential in the light of their own financial goals. We encourage you to consider the risks and opportunities,” Gensler said in a statement.

,‘We encourage investors to consider the potential risks and opportunities of investing in the light of their own financial goals.’,

— SEC Chairman Gary Gensler

But a large number of people are turning to social media for investment ideas, at least as part of their decision-making process, the data indicates.

The World Economic Forum surveyed more than 9,000 people in nine countries to gain insight into the minds of retail investors and non-investors. Participants came from countries including the United States, various European countries, Brazil, South Africa, China and Japan.

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The researchers also conducted four virtual workshops, oversaw three steering committee sessions, and conducted interviews with financial services firms, regulatory bodies, and academia.

In developed markets such as the United States and European countries, “word of mouth and traditional media sources (such as newspapers and TV) are more influential than social media,” when it comes to making investment decisions, the researchers wrote. “Young investors (aged 18-35), however, give little preference to social media,” he said of the survey conducted in August.

Younger investors are also more interested in cryptocurrencies. While 13% of all US adults own cryptocurrencies, 20% of Generation Z respondents and 24% of millennials said they owned crypto, according to a separate ongoing poll. Morning consultation.

The World Economic Forum report suggests that the investment impact of social media is more pronounced in emerging markets such as Brazil, South Africa and China. “More than 65% of investors in emerging markets consider social media to be extremely or marginally important in investment decision-making,” the researchers said in a report conducted in collaboration with Accenture ACN.
and BNY Mellon BK,

,The impact of social media on investment decisions goes well beyond the meme stock frenzy that first hit the markets early last year. ,

Joe Rotunda, deputy chairman of the enforcement section committee at the North American Securities Administrators Association, said the Kardashian case marks a new challenge for regulators with the rise of “financial companies.” The organization includes state-level securities and financial regulators in the United States, Mexico, and Canada.

Association in August Issued an advisory for the investing publicFlagging the potential pitfalls of listening too closely to notable names with large social-media presences – namely, those who do not have to comply with the same disclosure requirements as financial professionals and may have unknown conflicts of interest.

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Rotunda, the enforcement director of the Texas State Securities Board, said free-speech rights explicitly allow people to go online and talk about topics they care about, including finance and financial products.

“But where there is a tendency to cross the line, when someone is paid compensation for promoting a particular product and they themselves are, perhaps, unbiased, or have some sort of intrinsic knowledge or Lend his name, a special security, a special investment,” he said. “When they are getting compensation, many times it is not disclosed.”

The rise of social media has exposed young investors to self-described experts without financial expertise, he said, adding that the pandemic has accelerated that trend.

Rotunda said that last year, member agencies brought 106 enforcement actions that were rooted in complaints about online and social media-based investment offerings. This is an increase of 22% compared to last year and 74% from 2019, he added.

“It’s not a bad idea to get information from any single source,” Rotunda said. Still, he said, “we would always encourage people to deal with a financial professional.”