Social media influencers are paid to pump and dump cryptocurrencies
Kim Kardashian has been slated by a financial watchdog for promoting a high-risk cryptocurrency to her 250 million Instagram followers.
Charles Randell, chairman of the Financial Conduct Authority, said her post “may have been the financial promotion with the single biggest audience reach in history”.
The post in June this began “Are you guys into crypto????” and went on to promote EthereumMax, while including the disclaimers “This is not financial advice but sharing what my friends just told me.”
At the bottom it also stated “#AD” – if you missed that or did not know what it meant then you would not have known that she was being paid to post the message.
Mr Randell criticised her for not disclosing that EthereumMax “was a speculative digital token created a month before by unknown developers – one of hundreds of such tokens that fill the crypto-exchanges.”
Speaking at the Cambridge International Symposium on Economic Crime, he went on: “Of course, I can’t say whether this particular token is a scam.
“But social media influencers are routinely paid by scammers to help them pump and dump new tokens on the back of pure speculation.
“Some influencers promote coins that turn out simply not to exist at all.
“There are no assets or real world cashflows underpinning the price of speculative digital tokens, even the better known ones like Bitcoin, and many cannot even boast a scarcity value.
“These tokens have only been around for a few years, so we haven’t seen what will happen over a full financial cycle.
“We simply don’t know when or how this story will end, but – as with any new speculation – it may not end well.”
Around 2.3 million Britons hold cryptocurrency assets, which are not covered by the FCA or protected by the Financial Services Compensation Scheme.
I’ve emailed EthereumMax (not to be confused with Ethereum) a range of questions including asking it to identify its founders and substantiate claims of “automatic 6% financial rewards” but have had no response.
Interestingly, analysis on the Paul Barron Network shows that the Kardashian shilling did little to move the price in EthereumMax, suggesting that her fans might value her tips when it comes to many matters, but financial guidance is not one of them.
Mr Randell’s speech included a sweeping attack on the role that social media play in financial fraud.
“When I last spoke at this Symposium in 2019, I said that online platforms, including the search and social media giants, needed to step up and stop publishing and profiting from fraudulent content,” he said.
“Since then, we have seen some progress. Google has committed to stop promoting advertisements for financial products unless an FCA authorised firm has cleared them.
“Google is doing the right thing and we will monitor the impact of its changes closely. We now need other online platforms – Facebook, Microsoft, Twitter, TikTok – to do the right thing too. And we think that a permanent and consistent solution requires legislation.
“I noted in 2019 that the Government’s proposed legislation about online harms didn’t cover financial scams. Since then, the Government has brought some financial harms within its proposals.
“That’s welcome, but paid-for advertising, the main source of online investment scams, is still not covered. We consider it should be.”