Gary Gensler Breaks Down Charges Against Kim Kardashian Over A Crypto Promo

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Following is the unofficial transcript of a CNBC exclusive interview with SEC Chair Gary Gensler on CNBC’s “Squawk Box” (M-F, 6AM-9AM ET) today, Monday, October 3rd. Following is a link to video on

SEC Chair Gary Gensler Breaks Down Charges Against Kim Kardashian Over A Crypto Promo

ANDREW ROSS SORKIN: Welcome back to “Squawk.” We knew this morning the SEC charging Kim Kardashian for a post on her Instagram last year that endorsed a crypto asset security that was sold by EthereumMax without disclosing how much she was paid to promote it.

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The SEC says Kardashian has agreed to settle the charges, pay more than a million dollars in penalties and cooperate in an ongoing investigation. Joining us right now to talk about it all in exclusive interview is SEC Chair Gary Gensler. Gary, it's great to see you this morning. Help us understand why you brought this case and why you settled it.

GARY GENSLER: Thank you, Andrew, it's good to be with you. Look, Congress passed a law many decades ago called the Securities Act and it was to protect the public and part of that law said that if you tout a stock, you need to disclose not only that you're getting paid, but also the amount so the source and the nature of those payments.

And so this was to protect the public when folks and this law was passed in the 1930s, we've brought these types of cases over the decades but even in the last five years, with regard to crypto, it's really important that the public understand if somebody is touting a crypto security token that are they getting paid and how much are they getting paid?

And we brought a case a number of years ago I think four, four years ago against Floyd Mayweather, against DJ Khaled, Steve Seagal, an actor, and others over the years. So, this is unfortunately it's another time that we brought a case like this.

SORKIN: Chair Gensler, explain this though because I think that there's probably lots of questions in the public, in the influencer space, social media, about the distinctions that are being made here.

Our understanding is at least from the posts that I've seen from Kim Kardashian, that seems to be the one in question, she had what's called a hash, hashtag ad under the post, which is something that a lot of influencers do to identify in fact that this is a promotional post.

Why does that not count in this instance? Is it simply that she has to actually disclose the amount of money she's receiving and how does that differ for example from others who make similar posts who may own in fact different cryptos or other securities and promoting them?

I'm thinking of Michael Saylor from MicroStrategy who has a huge stake in this has been out promoting on online and elsewhere. Or you can even talk about an Elon Musk who's talked about Dogecoin. They may not be being paid specifically cash to promote those things, but they have such a large investment in them that they have even more at stake, frankly.

GENSLER: So let me talk about the core and I think why this is in the securities laws. You're, you're right that if you're advertising perfume, or you're advertising vacation homes or or anything else on the internet, there are various laws related to that.

But these are the securities laws and those other laws might be appropriate to just say hashtag ad. But in the securities laws, Congress put in place that you have to disclose not only that you're getting paid but the amount, nature of it.

And this was really to protect the investing public when somebody is touting a stock and whether that's a celebrity, an influencer or the like, and that's at the core of what this is about and we’ve brought these cases in the past.

SORKIN: And so if you see an ad. Chair Gensler, if you were to see an ad, and I think we all did during the Superbowl, for example, with Matt Damon around crypto, I don't know if in the fine print of that ad it said how much he was being paid personally to promote that. Would that be something that would be required?

GENSLER: I'm not gonna get into, Andrew, I understand the question. I'm not gonna get into any other specific circumstances, but it's always depends on the facts and the circumstances and the anti-touting provisions of the acts, 17(b) if you care to look it up.

SORKIN: But I guess what’s the distinction if you were to see an ad on television, an ad in print with a picture of an actor, an actress, an individual of any sort that's being paid anything, a model. Are they supposed to specifically disclose the amount of money that that model or actor or whomever is being paid?

GENSLER: In this circumstance and let me say, I want to acknowledge Ms. Kardashian who has been cooperating and ongoing cooperation and we really appreciate that, but in this particular case, this is about an influencer.

A high profile celebrity on their Instagram site, putting out a tout for this token, EthereumMax, which is a security we've determined and so those are the facts and circumstances here and it's important for the investing public to understand.

Also, this is a highly speculative asset class and so when a celebrity or influence is touting it, it's important that the public understands that relationship and are they getting paid and how much they're getting paid on their Instagram site. That's what this was about. I hope that’s helpful.

SORKIN: Chair Gensler, we have a statement from from Ms. Kardashian’s lawyer and I want to read it in a moment. But I want to ask you a separate question because a lot of people are focused on it this morning.

You have determined in this case that EthereumMax is a security and that unto itself is interesting because there are questions about whether firms like Coinbase are exchanges, or whether they are broker dealers because of this issue of securities, and whether all of these things are now consistent or not.

GENSLER: So there's about 10,000 tokens, crypto tokens, and the investing public is investing hoping for a better future. An agency, the Securities and Exchange Commission, was put in place to protect the public in those circumstances when you're hoping for a better future, you're investing in something anticipating profits based upon the efforts of others.

And that's what we found in this case with a EthereumMax. And to your question, I think and my predecessor thought this is well, that most of these tokens are in fact that that the public is investing, anticipating and hoping for profit based on somebody else's efforts. And yes, those various intermediaries are likely, need to register as either broker dealers or exchanges as you said.

BECKY QUICK: Chair Gensler, we had Chairman Rostin Behnam from the CFTC on with us last week, and he made the point—

GENSLER: Good man.

QUICK: That the CFTC should be regulating all of these things. When you start to build up I guess some case law some examples of people who have agreed to settle with you like this, does that make the case more firm that the SEC would then be the place where these are all regulated?

GENSLER: Look, our agency is an agency that oversees this basic bargain. When a group of entrepreneurs is raising money from the public and the public's anticipating a profit, they need disclosure full, fair and truthful disclosure.

And that's the core bargain in our capital markets, you get to take the risk, but the person raising money or the persons raising money has to disclose various information to you. That seems how our capital markets work best.

The SEC is very good at this and that's what we do and the case law is clear on this. The law is clear. I believe based on the facts and circumstances most of these tokens are securities.

SORKIN: Chair Gensler, one more question on this and then I want to pivot the conversation for a momen.t I got an email this morning from the head of an advertising agency who said, please ask Chair Gensler to very explicitly explain what the rules are both for social media and for all sorts of other media.

As we make determinations about what kind of disclosure we have to make if in fact we're going to be promoting and this becomes more complicated whether it's a security or how you determine Bitcoin or some other crypto to be so for those advertising agency executives who are watching you right now, what would you tell them?

GENSLER: I would tell them that they should read the securities laws and and 17(b) the anti-touting laws been on the books for a long time and they know, the advertising executive, with all respect, they know that if somebody is out promoting a security, they've got to disclose not only that they're being paid, but how much they're being paid.

And particularly in crypto, if you thought about it mr. or ms. advertising executive, highly speculative asset, why is it that somebody's having that celebrity put something on their Instagram site? It's to to gain attention, bring people in, if somebody's paying them, that's an important piece of information and Congress is the one that laid out these laws.

SORKIN: Chair Gensler, I want to pivot the conversation. I do also want to read a statement from Ms. Kardashians lawyer who says, “Ms. Kardashian is pleased to have resolved this matter with the SEC. Kardashian fully cooperated with the SEC from the beginning and she remains willing to do whatever she can to assist the SEC in this matter.

She wanted to get this matter behind her to avoid a protracted dispute. The agreement should reach with the SEC allows her to do so so that she can move forward with her many different business pursuits.”

And of course, we just heard you thank her for for settling this case. Let me ask you about the other big issue though that I think a lot of people in the markets are confronting this morning, which is what you think about Credit Suisse this morning.

There's lots of speculation again, this is speculation that's online, in print and elsewhere. They don't have hashtag ad on them but how concerned are you about liquidity issues and the stability of the marketplace, and Credit Suisse specifically if you could?

GENSLER: Well, let me step away from the specifics of any one company and I think your viewers understand I can't comment on any one company. But we're in uncertain times, a war continuing in Eastern Europe, various changes in the marketplace highly volatile, as we just saw last week in the United Kingdom and the Gilt market that's their sovereign debt markets, it’s very volatile.

And so in these times, it's really important that an agency like ours sort of redouble our efforts on resiliency, financial stability, and that's why we have numerous projects, ongoing projects to heighten the resiliency of our US Treasury market or our money market funds or our bond funds or something as boring as shortening the settlement cycle to one day from two days.

So these are the projects we're working on. But for the investing public, we're going to make every effort to to lower those risks of financial stability risk where we can but these are ongoing projects that don't speak to your one company that I can’t speak to.

SORKIN: Well let me ask you then more specifically, in terms of the stability in the markets, systemic risk, people have talked about the possibility of a Lehman moment. Can you speak specifically though to this weekend, were you on the phone talking to folks about concerns in Europe at least broadly around banks in that region?

GENSLER: I had nice conversations with my daughter whose birthday was this weekend but I think that's about all I can tell you about my weekend, Andrew.

SORKIN: Okay, Chair Gensler, we appreciate you joining us this morning to talk to us about this settlement with Kim Kardashian and social media and we appreciate it and look forward to talking again very soon.

GENSLER: Thank you.

SORKIN: Thank you.