US SEC Confirms Meme Coins Are Not Securities but Warns of Fraud
Highlights
- SEC declares meme coins not securities, equates them to collectibles.
- SEC warns of potential fraud in meme coin market despite non-security status.
- House Democrats propose MEME Act to prevent politicians from endorsing meme coins.
The United States Securities and Exchange Commission (SEC) has clarified that meme coins do not fall under federal securities laws. The agency stated that these digital assets are more like collectibles and are not subject to the regulations that apply to traditional financial instruments. However, the SEC warned that fraudulent activities related to meme coins could still lead to enforcement actions by other federal or state authorities.
US SEC States Meme Coins Are Not Securities
In a statement released on February 27, the SEC’s Division of Corporation Finance stated that meme coins do not qualify as securities under the Securities Act of 1933.
“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,” the statement read.
The agency explained that meme coins do not provide any rights to future income, profits, or assets, which are key factors in determining whether an asset is a security. It also noted that meme coins do not generate yield and are primarily driven by market speculation and social trends.
The agency clarified that since meme coins do not meet the definition of securities, their issuers and traders do not need to register transactions with the agency. The statement emphasized that meme coin buyers and holders are not protected by securities laws.
SEC Warns of Fraud in the Meme Coin Market
Despite the clarification that they are not securities, the SEC warned that fraudulent activities in this sector could still face legal consequences. The agency noted that while it does not regulate meme coins under securities laws, other federal or state agencies may take action against deceptive practices.
Khurram Dara, a lawyer at Bain Capital Crypto, pointed out that misleading promotions, scams, and fraudulent schemes involving meme coins could still be prosecuted. The agency also stated that it would continue to monitor the crypto market for any potential violations of financial regulations.
“The offer and sale of meme coins do 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 statement added.
House Democrats Bill to Restrict Politicians
Before the SEC’s statement, House Democrats had announced plans to introduce the Modern Emoluments and Malfeasance Enforcement (MEME) Act. The proposed bill seeks to prevent public officials, including presidents and their families, from launching or endorsing meme coins.
California Representative Sam Liccardo, who is leading the bill, stated that the legislation aims to stop political figures from profiting off meme coins. The move comes after President Donald Trump launched a meme coin named “TRUMP” shortly before taking office.
The TRUMP token saw rapid gains but later experienced a sharp decline, losing over 50% of its value in the past month. The market reaction led to concerns about political figures using meme coins for financial gain.
Crypto Industry Reacts to SEC’s Clarification
The statement has been welcomed by some members of the crypto industry who have long sought regulatory clarity. Ishmael Green, a crypto attorney at Diaz Reus law firm, said the decision could encourage more investment in the U.S. crypto market.
“This will drive continued investment in the U.S. crypto space, as the vast majority of meme coins launched in the last 12 months with multibillion-dollar market caps have been released on Solana, an American blockchain,” Green stated.
Major crypto exchanges, including Coinbase and Robinhood, saw a slight rise in their stock prices following the agency’s announcement. Market analysts believe that the clarification could allow exchanges to list more meme coins without the risk of regulatory enforcement.
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