SEC says memecoins aren't securities but fraud still a risk

The offer and sale of memecoins may not be subject to federal securities laws, the U.S. Securities and Exchange Commission's Division of Corporation Finance said in a statement Thursday.

A memecoin does not constitute any of the common financial instruments specified within the definition of security because a memecoin does not generate a yield or convey rights to future income, profits or assets of a business. As such, people who participate in offering and trading of memecoins do not need to register their transactions with the Commission under the Securities Act of 1933, nor do federal securities laws protect them.

Analysts have warned that memecoins overshadow legitimate innovation within the crypto space, with Ethereum founder Vitalik Buterin musing that they could represent avenues for public bribery. Bitwise CEO Hunter Horsley recently called them "culture imbued collectibles."

"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 SEC's statement said.

Under the Howey Test, memecoin purchases do not involve a pooled investment in an enterprise or depend on managerial or entrepreneurial efforts by others. The Howey Test is based on a 1946 U.S. Supreme Court case to determine if an asset qualifies as an investment contract and, therefore, a security.

Still, the SEC warns that not all memecoins are exempt from securities laws. If a project falsely uses the memecoin label to disguise a security, it will be evaluated based on the project's economic realities. Also, fraudulent activities related to the sale and promotion of memecoins could still face legal action from other federal or state agencies under different regulations.

SEC and crypto

Following Gary Gensler's departure, U.S. President Donald Trump tapped Paul Atkins to lead the SEC and Republican Commissioner Hester Peirce to lead a crypto task force. As such, the agency has taken on a more crypto-friendly stance toward the industry.

Over the past week, the SEC has withdrawn cases against Coinbase, Gemini, MetaMask, OpenSea, Robinhood and UniSwap. The case against Ripple remains active as of this writing. 

Coincidentally, Rep. Sam Liccardo (D-Calif.) introduced a bill on Thursday that would block the president, members of Congress and other senior officials, as well as their spouses and children, from issuing or sponsoring securities and cryptocurrencies like memecoins. This came after President Trump and his wife Melania launched memecoins shortly before Inauguration Day.

"Memecoins with no utility/team/pooled funding/roadmap officially legal, which is the right take, these are effectively baseball cards," Framework Ventures cofounder Vance Spencer said in a post on X. "Next up is the SEC providing a pathway from security to commodity status for decentralized protocols, grandfathering of existing cryptoprojects, and broader market structure. Incredible stuff."

The GMCI Meme index trades around 213.33, up about 0.35% over the past day but down 47% in the year-to-date period.