SEC Confirms Meme Coins Are Not Securities, Yet Fraudulent Activities May Still Face Enforcement Actions
The U.S. Securities and Exchange Commission (SEC) recently stated that memecoins are not regulated under federal securities laws and do not require registration with regulatory authorities. However, the SEC emphasized that any issuance and trading of memecoins involving fraud or scams may still be subject to enforcement actions by other agencies or government entities.
SEC: Memecoins are akin to collectibles and do not meet the definition of securities
In a statement released on the 27th, the SEC’s Division of Corporation Finance noted that memecoins “do not involve the issuance and sale of securities,” comparing them to “collectibles.” The statement clearly indicated that individuals or entities participating in the issuance and trading of memecoins do not need to register with the SEC: investors who purchase and hold memecoins are not protected under U.S. securities laws, but may still face investigations and prosecutions from other regulatory bodies if fraud or illegal sales are involved. The SEC further added that the purpose of this statement is to clarify the applicability of federal securities laws in the realm of crypto assets, emphasizing that memecoins typically “lack practical use or function” and exhibit “extreme market price volatility.” The agency pointed out that memecoins do not meet the general financial definition of “securities” and cannot be compared to stocks or bonds, as they do not provide returns or equity in business assets. Furthermore, memecoins also do not meet the “Howey Test” standard established by the U.S. Supreme Court, which defines an “investment contract” as an investment of money in a common enterprise with an expectation of profits derived from the efforts of others: the issuance and sale of memecoins do not involve investments in a business, nor do they involve reasonable profit expectations from the management or operations of others. Therefore, memecoins themselves are not considered securities.
SEC pushes for clarity in digital asset regulations, reaches settlements with crypto firms
As the SEC recently established a “Cryptocurrency Task Force” last month, it aims to expedite the formulation of a regulatory framework for digital assets; simultaneously, the agency has received positive news regarding its long-standing litigation with various exchanges and crypto companies. As of today, several companies, including Binance, Coinbase, OpenSea, Robinhood, Aux Cayes FinTech (a subsidiary of OKX), Uniswap Labs, and Gemini, have announced that they are gradually resolving litigation or investigations from the SEC.
(Crypto Mom Peirce: SEC will no longer substitute policy with enforcement, will clarify regulatory authority with CFTC)
Congress plans to propose a bill banning public officials from issuing digital assets
On the same day the SEC issued its statement, ABC News reported that Democratic members of the U.S. House of Representatives are preparing to submit a bill that prohibits public officials, including the President, from issuing, sponsoring, or promoting any securities, commodities, or digital assets. Ironically, just before President Trump and First Lady Melania took office on January 20 of this year, they released their own memecoins, TRUMP and MELANIA, which drew criticism from within the cryptocurrency community and some Trump supporters. Currently, both tokens have already fallen 83% and 93.5% from their historical highs.
(Warren writes to SEC and CFTC, requesting an investigation into Trump memecoin TRUMP, citing conflicts of interest)
SEC: Claiming to be a memecoin does not exempt one from criminal responsibility
However, the SEC also warned that this statement only applies to memecoins that meet its definition; if certain digital assets are issued merely under the guise of memecoins to evade securities laws, the SEC will still assess them based on their actual economic characteristics.
(Peirce leads the SEC Cryptocurrency Task Force: clarifying securities standards and providing legal avenues for token issuance)
Hester Peirce, the head of the SEC’s Cryptocurrency Task Force, stated earlier this month: “Most memecoins may not fall under the SEC’s regulatory purview within the current regulatory framework; they may fall under the jurisdiction of the CFTC or Congress.” The SEC’s stance now provides greater clarity to the memecoin market while also strengthening enforcement against cryptocurrency fraud, potentially reducing the occurrence of illegal activities.
Risk Warning
Investing in cryptocurrencies carries a high degree of risk, and their prices can be highly volatile, potentially resulting in the loss of your entire principal. Please assess risks carefully.
