Tech Brew Ride Home - Mon. 10/03 – Kim Kardashian In Crypto Trouble

Episode Date: October 3, 2022

Kim Kardashian has settled with the SEC over crypto promotion on social media. I continue to Wonder if, aside from TikTok, the biggest threat to Zuckerberg’s metaverse plans is actually Sony. The Supreme Court is gonna hear cases that could pierce the veil of Section 230. And the other social media law from Texas that Silicon Valley is fighting tooth and nail. Links: Kim Kardashian pays over $1 million to settle SEC charges linked to a crypto promo on her Instagram (CNBC) Celsius Network founder withdrew $10mn ahead of bankruptcy (FT) Sony Betting Big on Next VR Headset With Increased Production Plan (Bloomberg) Social Media Company Liability Draws Supreme Court Scrutiny (Bloomberg) Texas Social-Media Law on Web Censorship Upheld by Federal Appeals Court (Bloomberg) Tech companies are gaming out responses to the Texas social media law (Washington Post) Learn more about your ad choices. Visit megaphone.fm/adchoices

On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Welcome to the Tech meme right home for Monday, October 3, 2022. I'm Brian McCullough today. Kim Kardashian has settled with the SEC over crypto promotion on social media. I continue to wonder if, aside from TikTok, the biggest threat to Zuckerberg's Metaverse plans is actually Sony. The Supreme Court is going to hear cases that would pierce the veil of Section 230 and the other social media law from Texas that Silicon Valley is fighting tooth and nail. Here's what you miss today in the world of tech. has agreed to a settlement with the SEC for $1.26 million after not reporting a $250,000 payment to promote Ethereum Max on Instagram. And as part of the agreement, she won't be allowed

to promote crypto for three years, quoting CNBC. This case is a reminder that when celebrities or influencers endorse investment opportunities, including crypto asset securities, it doesn't mean that those investment products are right for all investors. Gary Gets Chancellor Chairman of the SEC said in a news release, Kardashian has already felt regulatory heat over her Ethereum Max promo, which she posted on Instagram in June of last year. She started the post by asking her millions of followers, are you into crypto? This is not financial advice, but sharing what my friends just told me about the Ethereum

Max token, end quote. Investors sued her, former NBA star Paul Pierce, and superstar boxer Floyd Mayweather Jr., earlier this year, over the promos for Ethereum Max. accusing them of artificially inflating the value of the asset. The SEC on Monday said Kardashian failed to report that she was paid $250,000 to publish a post about EMAX tokens, a crypto asset offered by Ethereum Max. The post, which featured the hashtag, hashtag ad, included a link to the Ethereum Max website, which gives users instructions about how to buy the tokens. The regulator added. Her failure to disclose the payment was a violation of federal securities laws, the SEC said. She agreed to

pay $260,000, which includes the payment she received plus interest in addition to the $1 million penalty, the agency said. Congress passed a law many decades ago called the Securities Act, and it was to protect the public. Gensler told CNBC's squack box on Monday morning, part of that law said that if you tout a stock, you have to disclose you're getting paid, end quote. Lots of chatter about this, and a lot of people asking, so are celebrities being made poster children for this sort of thing, while the actual folks behind the products being shilled are getting away without any action, quoting Joe Wisenthal on Twitter. It's interesting that the SEC is going after piddily celebrity crypto pumps, but at the same time, various shadow banks

that held hundreds of millions of retail dollars, etc., were given free rein, end quote. Also lots of folks asking, is Matt Damon in touch with his lawyer this morning? What about the folks over at Goop? But Ron Hammond tweeted this, quote, Very interesting for a lot of reasons, but timing of this news is one to consider. It is the first day of the new fiscal year. Enforcement action before markets open is rare, and going after a popular celebrity. These comms rollouts are intentional for max media coverage. Gensler on CNBC right now to discuss the enforcement action. Easily the heaviest comms push between the morning interviews, pre-made video and timing of action we've seen to date. Very telling, end quote. Meanwhile, sources are telling the Financial Times that Celsius founder Alex Machinsky withdrew $10 million from the crypto lender weeks before the company froze user accounts. A source says that around $8 million of that was used for taxes. But quote, the withdrawals of crypto by Machinsky in May came as customers were pulling their assets from the company in large numbers, spooked by the turbulence in crypto markets and concerns about Celsius's financial health. Celsius froze withdraws on June 12th, leaving hundreds of thousands of retail investors unable to access

their savings. The company filed for bankruptcy in July with a $1.2 billion hole in its balance sheet. The business reached a peak last year of $25 billion worth of crypto assets deposited by customers who were attracted by the outsized interest rates Celsius offered, some as high as 18% on certain cryptocurrencies. The withdrawal revelations will intensify scrutiny of Machinsky, who resigned as chief executive on Tuesday and will raise questions about when he knew Celsius would be unable to return customers' assets. Details of Machinsky's transactions are set to be submitted in court by Celsius in the coming days as part of a broader disclosure by the company of its financial affairs. A spokesperson for Mishinsky said he and his family still had $44 million worth of crypto assets

frozen with Celsius even after the withdrawals, which he had voluntarily disclosed to the official unsecured creditors committee in the bankruptcy proceedings. In mid to late May, 2022, Mr. Machinsky withdrew a percentage of cryptocurrency in his account, much of which was used to pay state and federal taxes. In the nine months leading up to that withdrawal, he consistently deposited cryptocurrency in amounts that totaled what he withdrew in May, the spokesperson said. He continues to be committed to working with and uniting the community around a recovery plan that will maximize coin and liquidity for all, they added. Mishinsky 56 co-founded Celsius in 2017 and was the public face of the company,

appearing in weekly video addresses on YouTube in which he pushed his message of financial liberation from the banking establishment, end quote. Sources are telling Bloomberg that Sony plans to make 2 million PlayStation VR2 units by March of 2020 and has not yet faced any sort of supply chain constraints in doing so, to quote, Teddy KGB from the movie Rounders, Very aggressive. Quote, mass production of the virtual reality goggles began in September and hasn't yet faced supply chain constraints, said the people who asked not to be identified discussing

private information. The production figure could be adjusted depending on the device's sales momentum once it's released early next year. Sony's roadmap for the PSVR2 anticipates much greater popularity than the company's preceding PlayStation VR goggles for the PlayStation 4, which took eight months to reach a million sales. Meta's Quest 2, the most popular VR headset today, shipped 2.8 million units in its first quarter of availability, according to IDC figures. Sony has yet to give an official price or release date for the PSVR 2.

Its current plan to start selling the headset in early 2023 will coincide with expected relief of the supply chain bottlenecks that have hampered availability of the PlayStation 5 console since its launch in late 2020, the people said. That would give the company sufficient inventory of both headsets and consoles for a big marketing push. users will need a PS5 console to use the VR headset. A key to success is the quality of the game Sony will be able to develop, said Tokyo-based analyst Circantoto of Kenton Games. The other critical point will be the price. Speck-wise, the PSVR2 is a beast, and some users already expected to cost as much as the PS5 itself, end quote. Game developers remain skeptical about the VR segment because of its relative lack of market penetration, especially on Sony's home turf of Japan. Meta's Quest 2 is estimated by IDC to have shipped 17 million units to date and is lauded

as the high watermark for the sector, but pales in comparison to other products in the console, mobile, and PC gaming arenas, end quote. So again, I want to look at this through the lens of Mark Zuckerberg's Metaverse dreams. That article just noted the skepticism that developers have for the space, and yet they too are aware of the heat in the space, as potentially the next big thing. And if anyone has the developer relationships to make a new VR platform a thing, because of developer support, it's Sony, right? Right now, I'm pretty sure the MetaQuest is working with second and third tier developers to develop things for their VR devices. I'm broadly generalizing, of course, but you get my point. Meanwhile, Sony could port over a VR version of a

AAA game, and people would be hugely incentivized to at least give it a try, right? Like, if a VR version of Fortnite came out tomorrow, that would be a big deal. And sure, meta could get a port of that, and probably one is in the works. But meanwhile, if you'll remember, regulators are looking hard at meta's attempts to acquire gaming studios, so maybe they won't be able to buy their way into competition here. Again, I'm wondering if Zuck has pivoted his company into what might be a strategic cul-de-sac, at least at first blush. The United States Supreme Court has agreed to hear two Section 230-related cases. One is Gonzales v. Google, and the other is Twitter versus Tamina, both stemming from terrorist content on those services.

Quoting Bloomberg. The case marks the court's first test of the broad immunity social media companies have enjoyed under a provision known as Section 230, part of the 1996 Communications Decency Act. Section 230 has become a target of conservatives, including former President Donald Trump, who say it lets left-leaning tech companies censor right-wing voices. Google is trying to defeat a suit involving Nohemi Gonzalez, a 23-year-old U.S. citizen who was among 129 people killed in coordinated attacks in Paris in November 2015. Gonzalez's family says Google's YouTube service, through its algorithms, violated the Anti-Terrorism Act by recommending the terrorist group's videos to other users. Courts have interpreted Section 230 as immunizing computer services

when they are engaged in activities traditionally performed by publishers, such as deciding whether to display or edit third-party content. But Gonzalez's family says the recommendations are a different matter. Whether Section 230 applies to these algorithm-generated recommendations is of enormous practical importance, the family argued in the appeal. Interactive computer services constantly directs such recommendations in one form or another at virtually every adult and child in the United States who uses social media, end quote. Google says YouTube at the time of the attack used a sidebar tool to queue up videos based on user inputs, including browser history. The company says the only alleged link between the Paris attacker and YouTube was that one attacker

was an active user of the video sharing service and once appeared in an ISIS propaganda video. This court should not lightly adopt a reading of Section 230 that would threaten the basic organizational decisions of the modern internet, Google argued. Two lower courts, including the San Francisco-based Ninth U.S. Circuit Court of Appeals, sided with Google and said the lawsuit should be dismissed. The court will hear arguments and rule by July. The Supreme Court also agreed to hear a related appeal by Twitter in a case stemming from a 2017 terrorist shooting in an Istanbul nightclub. In the same ruling that absolved Google for the Paris attacks, the appeals court said Twitter, Google, and meta platforms had to face claims that they played a role in the Istanbul attack by failing to identify and remove ISIS materials.

Twitter contends the appeals court improperly expanded the scope of the Anti-Terrorism Act by letting the suit go forward, end quote. Piercing the legal veil of Section 230 would obviously be a huge, huge deal for the entire tech industry, which means we should probably also talk about this. Texas recently passed a social media law that major tech platforms are fighting tooth and nail. Here is how Bloomberg describes it, quote. A federal appeals court upheld the validity of a Texas social media law that companies like meta and Twitter say will prevent them from blocking hate speech and extremism. The Fifth U.S. Circuit Court of Appeals in New Orleans on Friday lifted a lower court injunction that had blocked the legislation from taking effect. The Texas law bars social media platforms with more than 50 million users from discriminating on the basis of viewpoint.

Texas Governor Greg Abbott and other Republicans argue the legislation is needed to protect conservative voices from being silenced. But tech groups say the measure unconstitutionally bars platforms from removing neo-Nazi and Ku Klux Klan screeds or Russian propaganda about its invasion of Ukraine. train. We reject the platforms attempt to extract a free-willing censorship right from the Constitution's free speech guarantee. A panel of judges on the appeals court said, the platforms are not newspapers, their censorship is not speech, end quote. The judges remanded the case back to the lower court for further proceedings consistent with their opinion. Net choice, a trade group representing Facebook owner, Meta and other internet companies, said it was disappointed with the decision which, quote, undermines First Amendment protections, end quote.

So what I just quoted you was from September 16th. As of right now, this law is sort of zombie moving forward. And so the big tech companies are weighing their options. From shutting down services only in Texas to maybe letting users opt out of hateful content, tech companies are gaming out responses to this law. And they would be pretty interesting responses, quoting the Washington Post. At some point in the future, Texans who visit social media sites might be greeted with a pop-up screen saying something like the content you are about to see contains graphic violence, white supremacist imagery, and other objectionable material. If you don't want to be exposed, click here. The pop-up is among a slew of options. Companies are weighing in response to a Texas

social media law that was upheld by the U.S. Court of Appeals for the Fifth Circuit last month. Most of the options being floated would alter tech company services so dramatically that some experts have concluded they would be virtually impossible to execute, say, lobbyists that work with the companies. Proponents of the Texas law and a similar one in Florida have said the legislation will prevent tech companies from engaging in censorship by banning them from taking down posts featuring political viewpoints that they disagree with. But the wording of the Texas law effectively bars the companies from moderating or blocking any content that is not already illegal, paving the way experts say for terrorists recruiting, white supremacists organizing, posts egging on people with eating disorders, vaccine disinformation, and other harmful material that many websites currently ban. though the laws in both states are products of conservative lawmakers, the Fifth Circuit's decision on the Texas law contradicts some longstanding Supreme Court opinions supporting First

Amendment protections for corporations, opinions that conservatives at one time hailed. It also stands in contrast to a ruling in May from the U.S. Court of Appeals for the 11th Circuit striking down a similar Florida law. The conflict means the law probably will be considered by the U.S. Supreme Court, where conservative justices have repeatedly supported corporations' First Amendment rights in cases such as Citizens United, a 2010 ruling that upended longstanding limits on corporate campaign contributions that the court said restricted corporation's rights to engage in political speech. Despite their hope that the Supreme Court ultimately will reject the law, Silicon Valley companies are starting to prepare for worst-case scenarios. Gaming out responses in

planning exercises called sandboxing, said Carl Zasbo, Vice President and General Counsel for Netchoice, one of the tech company lobbying groups that has challenged the Texas law. The group, The group's members include meta, TikTok, Google, Next Door, and dozens of other services. The strategizing falls into four general areas, the most radical of which includes the possibility of the companies shutting down their services entirely in Texas and potentially any other states where copycat bills have been introduced. Tech companies could also build the pop-up screens that would greet users, letting them know that the material they are about to see could be highly disturbing and giving them the option to opt into a more moderated environment, said Daphne Keller, director of the program on platform regulation at the Cyber Policy Center at Stanford University. Companies also have explored the risky proposition of stopping all moderation, essentially complying with the law to AT, and waiting for mass public protests or for people to flee their products.

And some have floated the idea of lobotomizing the content on their services, making it so fluffy that there is no grounds for removing anything, said Matt Schurr's, president of the Computer and Communications Industry Association, the other tech industry group, fighting. the law. The unifying factor in all these options is utter confusion, Schurrers said. Zasbo said that technology companies had, quote, actually sat down and tried to figure out how to implement the Texas law, end quote, but that right now most of the possibilities seemed impossible to implement, legally questionable, or would have the effect of costing them tens of millions of customers. Some of the greatest technical minds on the planet have come together, but they

can't make it work because what Texas and Florida are essentially doing is asking platforms to square a circle, he said. The experts likened the law to forcing Barnes and Noble bookstores to host copies of Adolf Hitler's Mienkopf manifesto or requiring newspapers such as The Washington Post to publish op-eds by self-proclaimed neo-Nazi candidates, end quote. So I guess we're ending today with some very important things to keep a close eye on. That's all for today. Talk to you tomorrow.