Kim Kardashian is a celebrity influencer who is paid for endorsing certain products. In 2021, Kardashian gave a “hot tip” on her Instagram page about a cryptocurrency token, the Ethereum Max Token, using a post that allowed her followers to easily purchase the tokens and join an online Ethereum community. Unfortunately for her, she failed to mention that she was paid to promote the cryptocurrency–and as a result, she ultimately incurred a fine of $1.26 million from the Securities and Exchange Commission.
It’s well established that Federal Trade Commission rules require influencers like Kardashian to disclose on the product endorsement that they were paid for it. However, it’s less well known that the SEC also has rules on the topic–and that they are stricter than the FTC’s. Thus, there are at least two opportunities for endorsers–and the advertisers they work for–to make an expensive mistake.
Who Regulates Influencer Endorsements and What Should Be Disclosed in Influencer Marketing?
In the Kardashian case, the SEC raised the red flag because the agency regulates cryptocurrency promotion. Cryptocurrency and blockchain investing is difficult to regulate, since it is community based. However, false and deceptive advertising practices and disclosures are an exception. Kardashian’s failure to disclose the endorsement violated anti-touting provisions of federal securities laws. In particular, it violated section 17(b) of the Securities Act, which requires people who are paid for endorsing a security to disclose that they received payment, “and the amount thereof.” And because it was done openly in a public forum, by a high-profile person, it was easy to spot.
Interestingly, it may have also violated FTC endorsement rules. The FTC-issued guidance for influencer marketing is clear that endorsers must disclose when they have received anything of value in exchange for their endorsements, including both money and non-monetary compensation such as free products. However, the SEC’s rules may be stricter, because the fact that Kardashian included “#ad” in her Instagram post may have been enough to comply with FTC rules. (Disclosures must be hard to miss, so a lot may depend on how the hashtag was displayed.)
Another agency that’s keeping up with the Kardashians is the FDA, which sent Kim Kardashian and the drug maker Duchesnay Inc. a warning letter in 2015, after Kardashian made an Instagram post promoting a prescription drug for morning sickness. The FDA letter called her post “misbranding” because it failed to provide information about the risks and side effects of the drug. More recently, in 2021, Kardashian’s sister Khloe Kardashian received a similar letter after posting an endorsement of a migraine drug from Biohaven Pharmaceuticals, which the FDA said made claims that were not supported by any research. As influencers become more pervasive in social media marketing, other influencers–and the companies they work with–run the risk of this kind of regulatory action.
Regulation in Influencer Marketing and False and Deceptive Advertising
Influencer marketing is an advertising tool that is basically the same as a celebrity endorsement. But unlike traditional celebrity endorsements, influencer marketing takes place over many social media channels and often comes from people who are less well known, making regulation complicated. According to a report by Tech Jury, the influencer marketing industry will reach $24.1 billion by 2025. Between the FTC, FDA, and SEC, there are dozens of emerging regulations to try to protect consumers from being unfairly “influenced.” Since influencers are found across a variety of platforms from Instagram to Tumblr to Discord, and marketers are hyper-targeting smaller influencers with higher engagement rates, keeping track of whether an endorsement is paid or not is even more difficult. The Kardashians are paid considerable amounts and are higher-profile, but big businesses are also betting on the everyday influencers by using influencer marketing strategies to reach micro-audiences.
It is likely that with more and smaller influencers will come more litigation and regulation of influencer marketing. If you are considering marketing or advertising campaigns and need assistance determining what is a proper disclosure, reach out to MMR Strategy Group.