The U.S. Securities and Exchange Commission (SEC) recently stated that memecoins are not regulated under federal securities laws and do not need to be registered 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 from other agencies or government entities.
SEC: Memecoins are akin to collectibles, not meeting the definition of securities
In a statement released on the 27th, the SEC’s Division of Corporation Finance pointed out that memecoins “do not involve the issuance and sale of securities” and likened them to “collectibles.” The statement clearly indicated that individuals or entities participating in the issuance and trading of memecoins are not required to register with the SEC: investors buying and holding memecoins are not protected under U.S. securities laws, but they may still face investigations and prosecutions from other regulatory agencies if fraud or illegal sales are involved.
The SEC further clarified that the purpose of this statement is to delineate the applicability of federal securities laws in the realm of crypto assets and emphasized that memecoins generally “lack practical use or functionality” and have “extreme market price volatility.”
The agency noted 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 ownership interests in enterprises. Additionally, memecoins do not satisfy the U.S. Supreme Court’s “Howey Test,” which defines an “investment contract” as an investment in a common enterprise with the expectation of profits derived from the efforts of others: the issuance and sale of memecoins do not involve investments in enterprises nor the reasonable expectation of profits from the efforts or management of others. Therefore, memecoins themselves are not securities.
SEC promotes clarity in digital asset regulations, reaching settlements with crypto firms
With the SEC having recently established a “Cryptocurrency Task Force” last month to expedite the development of a regulatory framework for digital assets, there have also been positive developments regarding the agency’s long-standing litigation with various exchanges and crypto firms.
As of today, several companies, including Binance, Coinbase, OpenSea, Robinhood, Aux Cayes FinTech under OKX, Uniswap Labs, and Gemini, have announced that they are gradually resolving lawsuits or investigations from the SEC.
(Crypto Mom Peirce: SEC will no longer substitute enforcement for policy and will clarify regulatory authority with CFTC)
Congress proposes a bill to prohibit public officials from issuing digital assets
On the same day that the SEC issued its statement, ABC News reported that Democratic members of the U.S. House of Representatives are preparing to submit a bill prohibiting 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 had issued their own memecoins, TRUMP and MELANIA, which drew criticism from within the cryptocurrency community and among some Trump supporters. Both tokens have since dropped 83% and 93.5% from their historical highs, respectively.
(Warren writes to SEC and CFTC: calls for investigation into Trump’s memecoin TRUMP for potential conflicts of interest)
SEC: Claiming to be a memecoin does not exempt one from criminal liability
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 regulations, the SEC will still evaluate them based on their actual economic characteristics.
(Peirce leads SEC’s crypto special task force: clarifying securities standards and providing lawful pathways 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 jurisdiction within the current regulatory framework and instead may fall under the jurisdiction of the CFTC or Congress.”
Now, the SEC’s position both provides more clarity for the memecoin market and strengthens enforcement against cryptocurrency fraud, potentially reducing the occurrence of illegal activities.
Risk Warning
Investing in cryptocurrencies carries high risks, and their prices may experience significant volatility, resulting in the loss of all principal. Please assess the risks carefully.