The SEC Staff at the Division of Corporation Finance issued a statement which said “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 under the federal securities laws.”
What types of meme coins were described? “A “meme coin” is a type of crypto asset inspired by internet memes, characters, current events, or trends for which the promoter seeks to attract an enthusiastic online community to purchase the meme coin and engage in its trading. Although individual meme coins may have unique features, meme coins typically share certain characteristics. Meme coins typically are purchased for entertainment, social interaction, and cultural purposes, and their value is driven primarily by market demand and speculation. In this regard, meme coins are akin to collectibles. Meme coins also typically have limited or no use or functionality. Given the speculative nature of meme coins, they tend to experience significant market price volatility, and often are accompanied by statements regarding their risks and lack of utility, other than for entertainment or other non-functional purposes.”
According to the Staff, the described meme coins do not meet the definition of an investment contract: “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. First, meme coin purchasers are not making an investment in an enterprise. That is, their funds are not pooled together to be deployed by promoters or other third parties for developing the coin or a related enterprise. Second, any expectation of profits that meme coin purchasers have is not derived from the efforts of others. That is, the value of meme coins is derived from speculative trading and the collective sentiment of the market, like a collectible. Moreover, the promoters of meme coins are not undertaking (or indicating an intention to undertake) managerial and entrepreneurial efforts from which purchasers could reasonably expect profit.”
SEC Commissioner Caroline A. Crenshaw disagrees with the Staff statement: “Today’s guidance from the Division of Corporation Finance turns that concept on its head. It advances an incomplete, unsupported view of the law to suggest that an entire product category is outside the bounds of SEC jurisdiction.”
Further: “The guidance offers no clear definition from law or even a basic dictionary. It generally describes a meme coin as an asset reflective of online or social trends, of speculative value, that tends to experience high volatility. But these are near universal hallmarks of crypto assets. The lack of a useful definition alone makes the value of this guidance questionable, except perhaps as a roadmap for crypto enterprises looking to evade oversight by labeling themselves as a meme coin.”