By Eliza Mergenmeier

 

Generally, influencers are people who make a profit from promoting a company’s product or service through social media. In the modern era of advertising, the middleman’s role, previously known as an ad agency, has become diminished as the company with the product they wish to promote can reach out to ‘influencers’ and ask them to advertise the product directly to their followers on different social media platforms. Influencers come in all shapes and sizes, from a young 22-year-old college girl promoting a vitamin to Serena Williams promoting a shoe line. Currently, the infamous Kim Kardashian is under heat from the Securities and Exchange Commission (“SEC”) for an advertisement she posted on Instagram.[1]

Kardashian posted an ad on her Instagram in June 2021 promoting the cryptocurrency EthereumMax.[2] Over a year later, in October 2022, the SEC charged Kardashian with violating the “anti-touting” provision of the Securities Act of 1933.[3] Kardashian settled the matter at the high amount of $1.26 million, along with the restriction to not promote any cryptocurrency for three years.[4]

Section 17(b) of the Securities Act is referred to as the “anti-touting provision” because it places requirements upon individuals who get paid to promote a security.[5] Essentially, if a person is promoting a security, they must disclose what they are being given as consideration for the promotion, as in Kardashian should have disclosed that she was being paid for her promotion of EthereumMax.[6] Further, the rules of the SEC require influencers to “disclose to the public when and how much they are paid to promote investing in securities.”[7] However, the Securities Act only regulates the promotion of securities, so the Federal Trade Commission (FTC) is the governing body for other types of products and services promoted by influencers.[8]

Section 5 of the FTC Act provides a broader outline of complying with the rules of endorsing and offering testimonials in advertising.[9] Further, Title 16 of the Code of Federal Regulations (CFR) offers a more comprehensive guide to understanding section 5.[10] Title 16 CFR § 255.5 requires that disclosures be made when there is a connection between the endorser and the seller of the product being advertised.[11] Thus, you might try to be more aware now when viewing Instagram stories to notice the hashtag, #ad, on the post. The FTC also requires that when an influencer claims to have a certain experience with a product or service, it should be representative of what consumers can expect.[12]

The body of laws governing influencers and the content they create has grown over the last two decades. In addition to the SEC and FTC, the Food and Drug Administration (FDA) has implemented regulations that prohibit an ad to not overstate a drug’s benefits.[13] Under the FDA’s laws, Kim Kardashian comes into play again. Kardashian promoted a drug named Diclegis, which claimed to treat nausea and vomiting during pregnancy without disclosing the subsequent drug’s risks.[14] In this case, though, the FDA contacted only the company that made Diclegis take remedial steps, which resulted in Kardashian reposting the advertisement, but this time with the drug’s risk disclosures.[15]

The laws governing advertisements and endorsements are typically set up to go after companies rather than individual influencers.[16] However, in recent years, we see how these agencies are broadening their conception of who can be to blame for misleading ads, and presumably in the future it will only get broader when we consider how influencers have almost pierced through every market and affect a large percentage of people.

 

 

 

[1] Shalia M. Sakona, Kim Kardashian Sanctioned by SEC for Unlawful Touting of Cryptocurrency, Bilzin Sumberg, (Oct. 5, 2022), https://www.bilzin.com/we-think-big/insights/publications/2022/10/kim-kardashian-fined-and-other-crypto-regulations.

[2] Id.

[3] Id.; SEC Charges Kim Kardashian for Unlawfully Touting Crypto Security, U.S. Securities and Exchange Commission, (Oct. 3, 2022), https://www.sec.gov/news/press-release/2022-183.

[4] SEC Charges Kim Kardashian for Unlawfully Touting Crypto Security, U.S. Securities And Exchange Commission, (Oct. 3, 2022), https://www.sec.gov/news/press-release/2022-183.

[5] Supra note 1.

[6] Securities Act of 1933, Pub. L. No. 117-263, 48 Stat. 74.

[7] Supra note 4.

[8] Gregory L. Cohen & Bryan Reece Clark, Tech Transactions & Data Privacy 2022 Report: #Compliance: Legal Pitfalls in Social Media Influencer Marketing,  National Law Review, (Feb. 11, 2022), https://www.natlawreview.com/article/tech-transactions-data-privacy-2022-report-compliance-legal-pitfalls-social-media.

[9] Id.

[10] Id.

[11] 16 CFR § 255.

[12] Supra note 8.

[13] Id.

[14] Id.

[15] Id.

[16] Id.

 

Image Source: https://people.com/tv/kim-kardashian-goes-to-jail-on-drop-dead-diva-photo/

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