Key Takeaways
Key takeaway #1 — The SEC’s Division of Corporation Finance (the Staff) announced that it will not consider “meme coins” – as described in the Staff’s statement – as “securities” under federal securities laws, and therefore not subject to SEC jurisdiction.
Key takeaway #2 — The Staff views meme coin purchasers and holders as not protected by federal securities laws.
Key takeaway #3 — The Staff carefully noted that whether any specific meme coin is or is not a security under the federal securities laws depends on the specific facts relating to that meme coin and the circumstances of its offer and sale.
Key takeaway #4 —SEC enforcement involving meme coins is likely to be muted, but other state or federal agencies could use their authorities to bring enforcement against participants in meme coin fraud schemes, such as “pump and dumps” or “rug pulls.”
On February 27, 2025, the Staff issued a statement (the Staff Statement) clarifying the application of the federal securities laws to crypto assets, specifically “meme coins.” Meme coins are a category of cryptocurrency tokens typically driven by internet trends or popular culture (e.g., memes). The Staff said that it does not view transactions in meme coins (as described in the Staff Statement) as involving the offer or sale of securities under federal securities laws. However, the Staff Statement does not expressly state whether fraud or market manipulation occurring through or as part of meme coins would be subject to federal enforcement actions under federal securities laws.
The Staff noted that meme coins are “typically purchased for entertainment, social, or cultural purpose, with value driven by market demand and speculation.” As a result, the Staff views meme coins as similar to collectibles such as trading cards, items lacking use (or limited use) and/or functionality, yet having speculative interest. The Staff reached the following conclusions as to meme coins described in the Staff Statement:
- Transactions in meme coins “do not involve the offer and sale of securities under the federal securities laws”;
- Persons who participate “in the offer and sale of meme coins do not need to register their transactions with the Commission under the Securities Act of 1933 (Securities Act) or fall within one of the Securities Act’s exemptions from registration”; and
- Purchasers and holders of meme coins are not protected by federal securities laws.
The Staff’s Analysis
The Staff applied the statutory definition of “security” to conclude that a meme coin does not meet the definition of a “security” because, “among other things, it does not generate a yield or convey rights to future income, profits, or assets of a business. In other words, a meme coin is not itself a security.”
The SEC then applied the test from SEC v. W.J. Howey Co., 328 U.S. 293 (1946), to determine if meme coins are “investment contracts” based on their “economic realities.” Under the Howey test, courts look at whether there is an investment in an enterprise premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others. 328 U.S. at 301. Applying Howey, the Staff explained that for the coins covered by the Staff Statement, “the offer and sale of meme coins does not involve an investment in an enterprise nor is it undertaken with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.”
The Staff reached this conclusion because meme coin purchasers are not investing in a common enterprise; “their funds are not pooled together to be deployed by promoters or other third parties for developing the coin or a related enterprise.” The Staff also concluded that the expectation of profits by meme coin purchasers is not derived from the efforts of others, rather it is derived from the speculative trading and market sentiment of the tokens, similar to collectibles. Notably, the Staff concluded that if a promoter who posts on social media about attempting to get a meme coin listed on trading platforms, such as crypto exchanges, that conduct is not likely “to be sufficient indicia to establish that purchasers had a reasonable expectation of profits based on the efforts of the promoters.”
The Staff emphasized that its position applies only to transactions in tokens that are consistent with the Staff Statement’s described characteristics of meme coins. If a token labeled as a “meme coin” deviates from these characteristics or is structured to evade securities laws, the SEC noted such tokens may still be subject to SEC jurisdiction and enforcement.
SEC Commissioner Crenshaw, the only Democratic Commissioner currently at the SEC, issued her own statement forcefully disagreeing with the Staff Statement, stating that the Staff did not provide clear guidance on what is or is not a “meme coin,” and that “meme coins” can exist on a continuum, with some being offers or sales of securities and others not.
Implications and Enforcement Risks
The Staff Statement means the majority of traditional meme coins will not be subject to the federal securities laws, and consequently, purchasers and holders will not be able to seek recourse from the SEC through federal regulatory enforcement of the federal securities laws. This also means that issuers and promoters of meme coins covered by the Staff Statement should not expect enforcement over failures to register.
However, simply calling a token a “meme token” does not make it a meme coin exempt from the securities laws under the Staff Statement. Whether a specific meme coin is a security or whether it is offered and sold as part of an investment contract requires “analyzing the specific facts relating to the meme coin and the manner in which it is offered and sold.”
Further, the Staff Statement is merely the views of the Staff, and does not alter the federal securities laws and regulations, nor does it bind the SEC. As a result, it is possible purchasers or holders of meme coins who suffer losses may file private civil actions under the federal civil securities laws, which would require a federal court to determine whether the meme coin in question is or is not security. Given such civil cases are costly to defend against, can create substantial potential liability, and are burdensome, promoters of meme coins may wish to seek legal review of potential transactions under the Howey test.
Finally, while the offer and sale of meme coins may not be subject to the federal securities laws for SEC enforcement purposes under the Staff Statement, this does not mean meme coins will avoid regulatory scrutiny. Implicitly, the Staff Statement leaves open the question of whether fraud or market manipulation occurring through or as part of meme coins, such as “rug pulls” and “pump and dumps,” would be subject to federal enforcement actions under federal securities laws. Explicitly, as the Staff notes, “fraudulent conduct related to the offer and sale of meme coins may be subject to enforcement action or prosecution by other federal or state agencies under other federal and state laws.” For example, the U.S. Department of Justice can criminally prosecute wire fraud involving digital assets, the New York Attorney General can prosecute civil securities violations under New York’s Martin Act (which does not require scienter to establish such violations), and the CFTC, which takes a broad view that digital assets are commodities, has the authority to prosecute commodities fraud for conduct involving the spot market. In the absence of SEC asserting jurisdiction over meme coins, these regulators, and other state securities and consumer finance authorities, may further scrutinize meme coin promoters and participants.