The US Securities and Exchange Commission (SEC) has issued last week new guidance confirming that meme coins do not fall under the definition of securities as outlined in federal securities laws.
According to the SEC’s Division of Corporation Finance, transactions involving meme coins do not require registration with the Commission under the Securities Act of 1933 and do not qualify for exemptions from registration.
Consequently, purchasers and holders of meme coins will not be afforded the protections of federal securities laws.
The SEC defines meme coins as crypto assets inspired by internet memes, characters, current events, or trends, with value driven primarily by market demand and speculation.
The guidance states that “meme coins are akin to collectibles” and generally have limited or no utility beyond entertainment and social interaction.
Applying the Howey test, which determines whether a transaction constitutes an investment contract, the SEC found that meme coin purchases do not involve an investment in an enterprise or a reasonable expectation of profit derived from the managerial efforts of others.
Instead, meme coin valuations are determined by speculative trading and market sentiment.
The guidance clarifies that while meme coins do not meet the definition of securities, fraudulent conduct involving their offer or sale remains subject to enforcement action under other federal or state laws.
Additionally, products labelled as “meme coins” that do not align with the outlined characteristics will be assessed based on their “economic realities” to determine potential securities law implications
Featured image credit: edited from freepik
