Some members of the Securities and Exchange Commission’s enforcement staff are accusing their boss Gary Gensler of being a publicity hound for his unusual unveiling of charges filed earlier this week against celebrity influencer Kim Kardashian, FOX Business has learned.
What irked the enforcement staff—the attorneys who developed the case brought against Kardashian – was that Gensler appeared to take credit for the case solo and on national television. They also say he embellished its importance to gain publicity for himself.
Kardashian, a billionaire reality star and marketer, paid a penalty for violating securities laws by failing to disclose that she earned $250,000 to promote the cryptocurrency EthereumMax on her Instagram page.
The case was far from the SEC’s biggest or most significant in its crypto crackdown even if Kardashian’s name provides plenty of attention. All of which makes Gensler’s rollout of the matter –with a well-timed national TV appearance and release of his own YouTube video—a ploy to get media attention, angry enforcement staffers have told people in recent days.
Kardashian, for instance, wasn’t accused of serious violations of securities laws. She didn’t mislead investors by pumping EthereumMax and then dumping the token at a higher price.
Her only violation, according to the complaint, was failing to disclose that she received a payment for her tout in an advertisement that appeared on her Instagram page.
"Are you guys into crypto????," she wrote, according to the Instagram post. "This is not financial advice but sharing what my friends just told me about the Ethereum Max token. A few minutes ago Ethereum Max burned 400 trillion tokens – literally 50% of their admin wallet giving back to the entire E-Max community."
She ended her advertisement with hashtags, including one disclosing that it was in fact an advertisement ("#AD").
Without admitting or denying wrongdoing, Kardashian forked over $1.26 million to settle the matter. She also agreed to no longer promote crypto for three years and cooperate with the commission’s ongoing inquiry into the issues involving the digital token.
Kardashian is worth an estimated $1.8 billion, according to Forbes.
SEC staffers point out that past SEC chairs would hold press conferences surrounded by enforcement staffers when they announced high-profile actions. Most of their public appearances involved speeches on broad issues, congressional testimony or occasional TV interviews to explain their agenda.
Gensler, enforcement staffers say, has gone a step further. He has his own segment on the SEC’s official YouTube channel titled "Office Hours with Gary Gensler," where he promotes various issues he deems important (one episode was titled "The Basics of Investing") and is a regular on the financial news TV circuit.
Many people inside the commission believe Gensler is looking to burnish his resume for a bigger job in the Biden Administration such as Treasury Secretary if Janet Yellen resigns, as expected after this year’s midterms. Supporters say he is merely trying to keep small investors informed about potential frauds and risky investments in crypto that are touted increasingly by celebrities.
Still others say Gensler has made regulating crypto a significant focus of his SEC tenure after being appointed by President Biden in early 2021. He is looking to cement the SEC’s authority over crypto – a growing business that government officials say involves significant fraudulent activity – that many believe should be regulated by the Commodity Futures Trading Commission.
"I think the SEC wants to show that they are the ones protecting retail investors who vote from slick investment schemes--in part to argue that they should at least have equal jurisdiction with the CFTC," said Columbia Law Professor John Coffee. "Never underestimate the intensity with which turf wars are fought in Washington."
A spokesman for the SEC declined comment for this report; Kardashian’s lawyer couldn’t be reached for comment.
Enforcement staffers, however, say the unveiling of the Kardashian case is a perfect example of Gensler’s limelight-seeking ways.
There was no press conference with Gensler surrounded by the lawyers who worked the case. The press release and documents on the settlement were released on the SEC’s website on Monday at 7:30 am EDT; Gensler tweeted at 7:50 he would appear on the financial cable news channel CNBC to discuss details.
People at the commission believe he had relayed details of the case well beforehand to CNBC, unbeknownst to most enforcement officials, since the network had also perfectly timed the breaking news of the case just seconds after 7:30 am.
They were also angered by a YouTube video that Gensler produced without their knowledge and tweeted to his followers at 7:30 am EDT. Without mentioning Kardashian by name, he issued a warning about believing the hype of celebrity endorsements when it involves risky investment products like crypto.
"A celebrity or influencer's incentives aren’t necessarily aligned with yours. We might enjoy watching a celebrity playing on a basketball court, starring in a reality TV show or a movie, or performing to a large crowd at a stadium show. We shouldn’t confuse those skills, though, with the very different skills needed to offer appropriate investment advice. Before investing, please do your research," he said.
"This stuff is pretty unprecedented in terms of promotion," said one former high-ranking SEC official who said he heard complaints from staffers about how Gensler promoted the Kardashian case. "SEC chairs will usually do press conferences on big cases surrounded by the people who did the actual work," another former SEC official told Fox Business.
Of course, there’s nothing SEC staffers can do but leave the commission, and they have. Fox Business has previously reported that several senior officials and more than a dozen staffers have bolted the enforcement division in recent months over Gensler’s brusque management style and aggressive, progressive agenda.
More enforcement staffers are said to be looking for private sector jobs. The enforcement division, as one former SEC official now in private practice said, is "hemorrhaging people."