SEC Staff Statement on Memecoins

Late Thursday afternoon, the Securities and Exchange Commission issued a staff statement on meme coins. Gratefully, they stated the obvious — “meme coins are akin to collectibles.” But that’s accurate only as far as it goes. For good or for ill, the new SEC apparently has washed its hands of meme coins and declared meme coins are ‘not my problem.’

Meme coins are defined in the statement as “a type of crypto asset inspired by internet memes, characters, current events, or trends for which the promoter seeks to attract [purchasers] to purchase the meme coin and engage in its trading.” These coins often come accompanied by statements that regarding risks including a lack of utility for anything “other than entertainment or other non-functional purposes.” Meme coins, accordingly, don’t need to be registered, don’t need an exemption, and purchasers are not “protected by the federal securities laws. Okay then.

But the staff is not done. Meme coins do not fall into the standard list of financial instruments – stocks, notes, bond – nor do they generate a yield or convey rights to future assets. And they are not investment contracts pursuant to the test laid out in SEC v. WJ Howey Co. Yes, they went there. There is no common enterprise, there are no reasonable expectation of profits to be derived from managerial or entrepreneurial efforts of others. There is none of that. The “value of meme coins,” the staff presents to us, “is derived from speculative trading and the collective sentiment of the market, like a collectible.” The buck has been passed – though it isn’t clear to whom. Rest assured, however, the SEC wants us to know that if someone tries to sell a real security that is disguised as a meme coin, they will be all over that. So, while there may indeed be fraud involved, that fraud isn’t securities fraud.

So where does this leave the cryptocurrency industry? Or the public, particularly the 800,000 wallets that purchased and traded the almost 200 million $TRUMP and 500 million $MELANIA coins that are in circulation? Or the estimated $100 million (or more by this date) in transaction fees that were accumulated?

Well, the SEC has spoken – it’s not their problem. Which leave us with some questions:

Are there problems (Yes)? But what are the problems (to be continued)? And whose problem is it (that is a good question)?