A judge in California has thrown out a class action lawsuit instituted by the investors of EthereumMax (EMAX) against reality TV star Kim Kardashian and boxing legend Floyd Mayweather.
The court ruled that the argument of the plaintiff did not meet the “heightened pleading standards” required for fraud cases. Judge Michael Fitzgerald dismissed the suit on the ground that investors failed to do their background research before investing in the project.
However, the judge allowed a window for the refiling of the suit by the plaintiffs upon amending certain provisions. Particularly the provision dealing with the Racketeer Influenced and Corrupt Organizations Act (RICO), which Judge Fitzgerald believes the defendants do not meet the standards for the application of the federal law.
“But, while the law certainly places limits on those advertisers, it also expects investors to act reasonably before basing their bets on the zeitgeist of the moment,” the judge said.
In addition, he pointed out that the advent of social media and the rise of influencers have made it easy for bad actors to promote fraudulent schemes. Celebrities using platforms like Instagram and Twitter can “readily persuade millions of undiscerning followers to buy snake oil with unprecedented ease and reach.
The creators of EMAX recruited Kim Kardashian, Floyd Mayweather, and former NBA star Paul Pierce to promote the digital asset, which the plaintiffs believed amounted to fraud. The aggrieved plaintiffs argued that the trio used misleading claims to “artificially inflate the price of the token.”
Kim Kardashian already faced the music with the SEC
The U.S. Securities and Exchanges Commission (SEC) took Kim Kardashian to court over her involvement in promoting EMAX, which the body says violates the anti-touting provision of the Securities Exchange Act of 1934.
The securities watchdog argued that the reality TV star failed to disclose a $250,000 payment she received to promote the EMAX tokens. Kardashian agreed to pay $1.26 million in penalties and pledged to stay away from any promotions involving digital assets until 2025.
Chair of the Financial Conduct Authority (FCA) Charles Randall claimed Kardashian’s EMAX Instagram post was “the financial promotion with the single biggest audience reach in history.”
Morning Consult, a financial services company, corroborated Randall’s claim by stating that 21% of adults living in the U.S. came across the advertisement, with 19% of respondents saying they invested in the project because of the post.
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