On February 27, 2025, the Division of Corporation Finance of the Securities and Exchange Commission (SEC) issued a staff statement clarifying its position on “meme coins” within the context of federal securities laws.
Background
The statement addresses a specific category of digital assets that has gained substantial popularity in recent years. The SEC defines meme coins as crypto assets inspired by internet memes, characters, current events, or trends, where promoters seek to attract enthusiastic online communities to purchase and trade these assets.
The Division identifies several key characteristics of meme coins as:
- They are typically purchased for entertainment, social interaction, and cultural purposes;
- Their value is primarily driven by market demand and speculation, making them akin to collectibles;
- They generally have limited or no use or functionality;
- Due to their speculative nature, they tend to experience significant market price volatility; and
- They are often accompanied by statements regarding their risks and lack of utility beyond entertainment or other non-functional purposes.
In a notable development for the digital asset industry, the Division has concluded that transactions in meme coins, as described in the statement, do not involve the offer and sale of securities under federal securities laws. This determination means that persons participating in the offer and sale of meme coins are not required to register their transactions with the SEC or seek exemptions from registration under the Securities Act of 1933.
The Division’s analysis applies the “investment contract” test from SEC v. W.J. Howey Co. to assess whether meme coins constitute securities. The statement explains that meme coins fail to meet the Howey test criteria because:
- Meme coin purchasers are not making an investment in an enterprise, as their funds are not pooled together for deployment by promoters or third parties to develop the coin or a related enterprise;
- Any expectation of profits is not derived from the entrepreneurial or managerial efforts of others, but rather from speculative trading and collective market sentiment; and
- Meme coin promoters typically do not undertake or indicate intention to undertake managerial and entrepreneurial efforts from which purchasers could reasonably expect profit.
Parameters of the SEC’s position
The Division clearly states that the position does not extend to:
- Meme coins with characteristics inconsistent with those described in the statement; and
- Products labelled as "meme coins" that attempt to evade securities laws by disguising securities as meme coins.
The Division emphasises that it will evaluate the economic realities of each particular transaction. Additionally, while meme coins may not fall under federal securities laws, the statement cautions that fraudulent conduct related to their offer and sale may still be subject to enforcement action or prosecution by other federal or state agencies under different legal frameworks.
Implications for Market Participants
This statement provides clarity for creators, promoters, and traders of meme coins that align with the Division’s described characteristics. However, market participants should carefully assess their specific offerings against the criteria outlined in the statement, as variations could trigger securities regulation.
This approach creates a clearer regulatory pathway for certain types of digital assets while maintaining regulatory oversight for others.
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