Meme Coins: SEC Staff Says “This is fine”*

*IYKYK. As always, read the fine print (and the footnotes).

The SEC’s Division of Corporation Finance issued a statement on February 27, 2025 to clarify the application of federal securities laws to "meme coins," a type of crypto asset inspired by internet memes, characters, current events, or trends. Meme coins are typically purchased for entertainment, social interaction, and cultural purposes, with their value driven primarily by market demand and speculation, akin to collectibles. They often have limited or no use or functionality, are accompanied by statements regarding their risks and lack of utility (other than for entertainment or other non-functional purposes) and are known for significant price volatility.

The Division's view is that transactions involving meme coins of the type described in the statement do not constitute the offer and sale of securities under federal securities laws. Therefore, offers and sales of meme coins do not need to be registered with the Commission under the Securities Act of 1933 or fit within an exemption from registration.

The Division evaluated the status of meme coins as a “security” and determined that they did not fit within the statutory or jurisprudential constructs of whether something is a security, applying the Howey test.

The Howey test considers whether there is an investment in an enterprise with a reasonable expectation of profits derived from the efforts of others. The staff asserted that meme coins are not securities for three reasons: first, they do not involve an investment in an enterprise because funds are not pooled together to be deployed by promoters or other third parties; second, the value of meme coins is derived from speculative trading and market sentiment rather than the efforts of others; and, third, promoters do not engage in or indicate that they intend to engage in “managerial and entrepreneurial efforts from which purchasers could reasonably expect to profit.”

The Division goes on to provide that “hyping the meme coin on social media and online forums and getting the coin listed on crypto trading platforms … are not likely to be sufficient indicia to establish that purchasers had a reasonable expectation of profits based on the efforts of the promoters.”

The statement is clear that simply calling something a “meme coin” does not mean it is exempt from the federal securities laws. The Division stated that it will evaluate the economic realities of each transaction when evaluating if a security is being issued, and that the guidance in the statement would not extend to meme coins that do not align with the described characteristics or products labeled as meme coins that are designed simply to evade federal securities laws. Additionally, the statement notes that fraudulent conduct related to meme coin transactions may be subject to enforcement by other federal or state agencies under different laws.

We expect that this statement will likely generate significant interest in meme coins, including questions of when activities related to the promotion of meme coins may cross over into “managerial and entrepreneurial efforts.”