The lawsuit, which accuses the stars of misleading their followers in a pump-and-dump scheme, claims the celebrities convinced their fans to buy EthereumMax tokens, only to sell them once their value was inflated. They were allegedly paid in tokens for their sponsorships and exited with substantial gains, leaving investors holding the bag, the lawsuit claims.
“Defendants touted the prospects of the Company and the ability for investors to make significant returns due to the favorable ‘tokenomics’ of the EMAX Tokens,” reads the lawsuit filed Friday in California federal court. “In truth, Defendants marketed the EMAX Tokens to investors so that they could sell their portion of the Float for a profit.”
The class action complaint was filed on behalf of a New York resident by John T. Jasnoch of Scott + Scott Attorneys at Law LLP, seeking to represent people who bought tokens from May 14 to June 27, 2021.
The complaint details an allegedly fraudulent business model under which EthereumMax conspired with celebrities to misleadingly promote its token with the expectation that people involved in the scheme could sell their interest once its value was artificially inflated.
On June 14, Kardashian posted for her 250 million followers on Instagram an ad for EthereumMax, which has no connection to established cryptocurrency Ethereum. “Are you guys into crypto???? 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. Swipe up to join the e-max community,” the Kardashian post states.
The lawsuit claims that the post had tremendous reach. A survey by financial services company Morning Consult found that up to 21 percent of all American adults and nearly half of all cryptocurrency owners had seen the ad and that 19 percent of respondents invested in EthereumMax as a result.
Charles Randall, chair of the United Kingdom’s Financial Conduct Authority, remarked that the post was the “financial promotion with the single biggest audience reach in history.”
“This meteoric rise did not last long, and EthereumMax began to deflate immediately after Defendant Kardashian’s post,” the complaint reads. “On July 15, the price of the EMAX Token hit its all-time low: $0.000000017 per unit, a 98% drop from which it has not been able to recover.”
Mayweather and Pierce had similar roles in the alleged scam, according to the lawsuit.
On May 26, former NBA player Pierce promoted EthereumMax in a widely discussed post on Twitter amid a dispute between him and ESPN, where he used to work as a commentator. Pierce publicly criticized ESPN, emphasizing that he “made more money with this crypto in the past month then I did with y’all in a year.”
EthereumMax announced on the same day that it was the exclusive cryptocurrency accepted for online ticket purchasing for the fight between Mayweather and Logan Paul, according to the lawsuit. The website to buy tickets offered various incentives to people purchasing tickets with EMAX tokens, including boxing gloves signed by Mayweather and an opportunity to attend his afterparty.
“The Promoter Defendants’ improper promotional activities generated the trading volume needed for all the Defendants to offload their EMAX Tokens onto unsuspecting investors,” the complaint states. “While Plaintiff and Class members were buying the inappropriately promoted EMAX Tokens, Defendants were able to, and did, sell their EMAX Tokens during the Relevant Period for substantial profits.”
The lawsuit argues that Mayweather violated a 2018 settlement with the Securities and Exchange Commission over failing to disclose payments he received for promoting a fraudulent cryptocurrency. As part of the deal, Mayweather agreed to pay over $600,000 in penalties and not to promote any securities for three years.
Kardashian has also landed in a legal trouble over making allegedly misleading claims in promotional endorsements. The U.S. Food and Drug Administration ordered Kardashian in 2015 to remove an ad promoting a morning sickness drug.
The complaint, which names executives at EthereumMax, alleges violations of state consumer protection laws, common law over aiding and abetting, and unjust enrichment. It seeks to represent investors who purchased EthereumMax tokens between May 14 and June 27.
Representatives for Kardashian, Mayweather and Pierce did not immediately respond to requests for comment.