Kim Kardashian attends the CFDA Fashion Awards in Manhattan, New York on November 7, 2022.
Andrew Kelly | Reuters
A federal judge on Wednesday dismissed a proposed class action by investors against the founders of the EthereumMax cryptocurrency, as well as celebrity endorsers including Kim Kardashian and boxer Floyd Mayweather Jr., over their promotion of the cryptocurrency on social media.
Investors who bought EMAX tokens claim to have suffered losses after taking the word of influential celebrities about the crypto’s value. The suit alleges that the defendants engaged in a conspiracy to artificially inflate the value of EMAX tokens.
Judge Michael Fitzgerald wrote that he recognized the claims in the lawsuit raised legitimate concerns about “the ability of celebrities to easily persuade millions of undemanding followers to buy snake oil with unprecedented ease and scope.”
“But while the law certainly imposes restrictions on these advertisers, it also expects investors to act wisely before basing their bets on the spirit of the moment,” wrote Fitzgerald of the Central District of California.
The judge found the plaintiffs’ claims insufficiently supported, especially “given the heightened pleading standards” for fraud claims, according to his decision in U.S. District Court in Los Angeles.
In addition to Kardashian, Mayweather and former Boston Celtics star Paul Pierce, defendants in the suit include Steve Gentile and Giovanni Perrone, the co-founders of EthereumMax, and Justin French, a consultant and developer of the cryptocurrency, court documents said.
Fitzgerald said in his ruling that he would allow the plaintiffs’ lawyers to refile their suit after amending some of their claims under a number of laws cited in the original complaint, which include the Racketeer Influenced and Corrupt Organizations Act, also known as RICO.
“We are pleased with the court’s well-reasoned decision in this case,” Michael Rhodes, Kardashian’s attorney, told CNBC.
The firing came weeks after investors in fallen crypto exchange FTX filed a class-action lawsuit against former FTX CEO Sam Bankman-Fried and the company’s prominent advertisers, including NFL superstar Tom Brady, for allegedly overstating the value of crypto tokens in promotional messages.
The decision came two months after Kardashian agreed to pay $1.26 million and not promote cryptocurrency for three years to settle SEC claims that she failed to disclose a $250,000 payment promoting EthereumMax in her Instagram account.
Fitzgerald, in his Wednesday ruling, said the EthereumMax case reflects a broader conflict surrounding celebrity and influencer promotional schemes.
“This action demonstrates that almost anyone with the technical skills and/or connections can mint a new currency and create their own digital marketplace overnight,” Fitzgerald wrote in his dismissal.
Investors sued EthereumMax and its prominent advertisers in January after a slew of influencers began recruiting sponsors to promote cryptocurrencies to their millions of social media followers.
Kardashian’s June 2021 Instagram post read: “Are you guys into crypto??? This is not financial advice, but I am sharing what my friends told me about the Ethereum Max token.”
Her post included “#ad” at the bottom, indicating she was sponsored. But it doesn’t disclose her $250,000 payment from EthereumMax.
Mayweather is promoting EMAX at a boxing match and a major bitcoin conference in Miami in June 2021.
But by January, the cryptocurrency had lost 97% of its value.
At a hearing last month, Fitzgerald indicated he was inclined to dismiss the case.
Bloomberg News, in a story about that hearing, said a lawyer for the plaintiffs in the case had asked the judge to allow him to reexamine the racketeering allegations in the suit to show how statements by the accused celebrities harmed investors.
“If the plaintiffs had known the true facts surrounding the promoters’ financial interest in the tokens and that they were being paid to pay out those tokens, they would not have paid as much for the tokens as they did,” attorney John Jasnoch said Fitzgerald, according to a transcript , quoted by Bloomberg.