US SEC States Meme Coins Are Not Securities

The United States Securities and Exchange Commission (SEC) has clarified that meme coins do not fall under federal securities laws.

The U.S. Securities and Exchange Commission (SEC) has clarified that meme coins do not fall under federal securities laws.

In a statement on February 27, the SEC’s Division of Corporation Finance stated that meme coins do not qualify as securities.

“It is the Division’s view that transactions in the types of meme coins described in this statement do not involve the offer and sale of securities within the meaning of Section 2(a)(1) of the Securities Act or Section 3(a)(10) of the Exchange Act, and are not subject to the registration requirements of those Acts,” the statement said.

The agency explained that meme coins do not provide any rights to future income, profits, or assets, which are covered by federal securities laws. It also noted that these digital assets do not generate yield and are primarily driven by market speculation and social trends.

“They are not typically sold to raise capital for an enterprise and do not offer any investment rights or privileges in accordance with Section 2(a)(1) of the Securities Act,” the SEC added.

The agency clarified that since meme coins do not meet the definition of securities, their issuers and traders do not need to register transactions with the agency. The statement also emphasized that meme coin buyers and holders are not protected by securities laws.

“Accordingly, the Division will not pursue any action to impose the federal securities laws on the transactions, offerings, or sales of such meme coins,” the agency concluded.

However, the SEC warned that fraudulent activities in this sector could still face legal consequences. The agency noted that while it does not regulate meme coins, other federal or state agencies may take action against deceptive practices.

“We understand that, in addition to our role in enforcing federal securities law, there are other federal and state statutes that may apply to the realm of digital assets and that may provide legal remedies for victims of fraud or other unlawful conduct,” said the SEC.

Khurram Dara, a lawyer at Bain Capital Crypto, pointed out that misleading promotions, scams, and fraudulent schemes involving meme coins could still be prosecuted.

The agency also stated that it would continue to monitor the crypto market for any potential violations of financial regulations.

“The offer and sale of meme coins do 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 agency added.

House Democrats had announced plans to introduce the Modern Emoluments and Malfeasance Enforcement (MEME) Act, which would restrict politicians from launching or endorsing meme coins.

Announcing the plans for the bill on Tuesday, California Representative Sam Liccardo said the legislation aims to stop political figures from profiting off meme coins.

The move comes after former President Donald Trump launched a meme coin named “TRUMP” shortly before announcing his 2024 presidential bid.

The meme coin, which began trading in August, saw rapid gains and reached a high of $0.00088 in mid-September. However, the token has experienced a sharp decline in recent months and is currently trading at around $0.00038.

Having lost more than 50% of its value in the past month, the TRUMP token is now trading at nearly half the price it reached in September.

The market reaction to the former president’s meme coin has led to concerns about political figures using meme coins for financial gain.