The SEC has officially stated that meme coins are not securities, but warned of potential legal consequences for fraudulent activities in this sector.
Why Meme Coins Are Not Considered Securities
The SEC specified that meme coins lack key characteristics of securities, such as rights to future income or assets, and yield generation mechanisms. These tokens are driven by speculation and social trends rather than investment fundamentals. Since they don't meet the Howey Test criteria, meme coin issuers and traders are not required to register transactions with the agency, but this also means investors are not protected by securities laws.
SEC Warns of Fraud in Meme Coin Market
While meme coins are not securities, fraudulent activities in this area could still lead to enforcement actions by other agencies. The SEC highlighted that misleading promotions, scams, and fraudulent schemes involving meme coins could still face prosecution. Khurram Dara from Bain Capital Crypto emphasized that scammers using meme coins to mislead investors will still face consequences, even if the assets themselves are not regulated as securities.
MEME Act: Restrictions for Politicians
Before the SEC's announcement, House Democrats proposed the 'Modern Emoluments and Malfeasance Enforcement (MEME) Act', aiming to prevent public officials from launching or endorsing meme coins. The bill was introduced by California Representative Sam Liccardo in response to President Donald Trump's meme coin 'TRUMP', which saw a sharp decline in value after an initial surge, raising concerns about political figures exploiting crypto for financial gain.
The SEC's new stance has been welcomed by crypto industry leaders who have long sought regulatory clarity. Such clarity is expected to drive continued investment in the U.S. crypto space and increase the listing of meme coins on exchanges.
