by Jenny Cieplak, Zachary Fallon, Ghaith Mahmood, Yvette D. Valdez, Stephen P. Wink, and Deric Behar

The Staff stated that most meme coins are not subject to federal securities laws or SEC fraud enforcement; who will oversee meme coins remains an open question.

On February 27, 2025, the Securities and Exchange Commission’s (SEC’s) Division of Corporation Finance published a Staff Statement on Meme Coins (the Statement). The Statement is the first tangible clarification of how the federal securities laws apply to a specific category of crypto since President Trump issued an executive order on digital assets (for more information, see this Latham blog post) and the SEC established a Crypto Task Force (for more information, see this Latham blog post). The Statement is responsive to the Crypto Task Force’s first priority (as highlighted by SEC Commissioner Hester Peirce, who leads the task force): determining the status of digital assets under the securities laws.

What Is a Meme Coin?

A meme coin is informally 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 an enthusiastic online community to purchase the meme coin and engage in its trading.” Meme coins also share certain common features, according to the Staff:

• they are typically purchased for entertainment, social interaction, and cultural purposes;
• their value is driven primarily by collective sentiment, market demand, and speculation, and are therefore akin to collectibles;
• they typically have limited or no use or functionality;
• they are speculative and involve speculative trading;
• they tend to experience significant market price volatility;
• they are often accompanied by disclaimers regarding their risks and lack of utility; and
• 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.

Meme Coins Are (Generally) Not Securities

According to the Staff, transactions in meme coins that fit the description above “do not involve the offer and sale of securities under the federal securities laws.” The Staff elaborated, stating that meme coins, unlike securities such as stocks, notes, bonds, and investment contracts, “do[] not generate a yield or convey rights to future income, profits, or assets of a business.”

Furthermore, according to the Staff, meme coins are generally not investment contracts under SEC v. W.J. Howey Co.[1] The offer and sale of meme coins does not involve an investment in an enterprise, and is not undertaken by an investor with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others (despite the fact that, as the Statement notes, the sellers may be “hyping the meme coin on social media and online forums and getting the coin listed on crypto trading platforms”).

Persons who offer and sell such meme coins therefore “do not need to register their transactions with the [SEC] under the Securities Act of 1933,” or otherwise qualify for an exemption under the securities laws.

The Staff is clear, however, that it is important to evaluate the economic realities of a transaction before making a determination in any specific case. The offer and sale of a meme coin whose properties are inconsistent with the descriptions set forth by the Staff may in fact constitute the offer and sale of a security. The Staff also warns market participants of products that are deceptively labeled as meme coins solely to disguise a security or investment contract, in an attempt to evade the application of federal securities laws.

Retail Investors Beware

The Staff embedded a warning to all buyers and traders of meme coins that “neither meme coin purchasers nor holders are protected by the federal securities laws.” This means that in the event of meme coin misconduct (such as pump-and-dumps, rug pulls, insider trading, market manipulation, faulty disclosures, etc.), the SEC’s fraud and enforcement authority and private claims under the federal securities laws would not be available. Fraudulent conduct, however, “may be subject to enforcement action or prosecution by other federal or state agencies under other federal and state laws” (see below, The Shifting Tides of Meme Coin Oversight).

Commissioner Crenshaw Sharply Disagrees

Commissioner Caroline Crenshaw criticized the Staff Statement in no uncertain terms: “It advances an incomplete, unsupported view of the law to suggest that an entire product category is outside the bounds of SEC jurisdiction.”

Commissioner Crenshaw asserted that the Statement offers no clear definition of meme coins, other than the descriptions listed above, and that such descriptors “are near universal hallmarks of crypto assets.” One can challenge this assertion given that the definition does not describe some of the largest digital assets (by market cap) such as Bitcoin, held primarily as a store of value, or Ether, used to execute smart contracts on the decentralized Ethereum blockchain, as well as many other tokens that have clear utility.

She also asserted that rather than treating meme coins as a cultural project driven by entertainment and speculation, the Staff should view them like any other financial product offered and sold by issuers with the aim of turning a profit (though of course, many products that are sold for profit are not “financial products”). She also described the various ways meme coin promoters heavily influence market demand and token value, and how such managerial efforts benefit the promoters (who often retain a significant portion of the token supply) and investors. She argued that this managerial effort drives expectations of profit in a common enterprise, and therefore that meme coins are more likely to satisfy Howey.

The Shifting Tides of Meme Coin Oversight

The scaling back of the SEC jurisdiction to regulate and enforce within the digital assets markets paves the way for other regulatory agencies, such as the Commodity Futures Trading Commission (CFTC), to step in and attempt to enforce against such meme coins if fraud or manipulation is present. The CFTC has general supervisory and enforcement authority over the commodity derivatives markets, but also enforcement authority to police against manipulation and fraud in the spot commodities markets. With meme coins being declared as not typically constituting securities, the CFTC may take the position that they are commodities. Indeed, the definition of commodity under the Commodity Exchange Act broadly captures all commodities except for onions and box office receipts.

Given the fungible nature of such meme coins and the trading markets created by meme coins (at times volatile and heavily liquid), meme coins may pique the interest of the CFTC as an area where the maintenance of market integrity may require enforcement. And while the CFTC has not declared meme coins commodities just yet, the CFTC may assert that such coins fit within the definition of commodity. For example, meme coins (as fungible tokens) do not benefit from the non-fungibility characteristics of NFTs which raise some counterarguments to the commodity characterization of NFTs (for more information, see this Latham Client Alert). This issue, however, remains unresolved with the CFTC. As such, the CFTC may evaluate the variables presented by meme coins and decide to exercise its authority to enforce against fraud and manipulation in the spot and derivatives meme coin markets while exerting supervisory authority over meme coin derivatives.

The Federal Trade Commission (FTC) may be another agency that could step in to police deceptive practices in the meme coin space. The FTC has broad authority to police against unfair and deceptive advertising practices (UDAP) under Section 5 of the FTC Act (15 U.S.C. 45). The FTC could assert that authority over meme coin projects that market the meme coins with misleading claims or omissions that materially misrepresent its features, risks, or investment potential. The FTC tends to be focused on UDAP actions in which a large swath of consumers have actually been harmed from such marketing. The FTC has also exercised this authority in the past in multi-agency efforts where those cases were also being pursued by other regulators.

Individual states may also escalate oversight of digital assets generally, and meme coins specifically. New York is one such state taking the lead to remind digital asset market participants of their obligations under its financial regulations. On January 16, 2025, Adrienne A. Harris, Superintendent of the New York Department of Financial Services (NYDFS), issued a notice regarding “sentiment-based virtual currencies” (i.e., meme coins). Per the notice and related consumer alert, the NYDFS is closely monitoring meme coins and the platforms on which they trade. The notice states that meme coins are not compatible with NYDFS’s guidance on the listing of virtual currencies and market manipulation as “they carry significant regulatory, market, and legal risk, and may be favorable instruments for the facilitation of illicit finance.” NYDFS has examination authority over entities that are registered under the state’s virtual currency regulation (23 NYCRR Part 200), and the notice implies that NYDFS will be reviewing licensed entities’ coin listing and anti-manipulation policies to ensure that meme coins are taken into account.

New York State is also looking to address crypto fraud (including meme coins) at the legislative level. On March 5, 2025, Assemblymember Clyde Vanel, chair of the New York Assembly’s Banks Committee, introduced Bill A06515 to amend state penal law to establish specific offenses for virtual token fraud[2] (involving fungible and non-fungible tokens, as well as stablecoins), illegal rug pulls,[3] private key fraud,[4] and fraudulent failure to disclose interest in virtual tokens.[5] Penalties for anyone who violates the provisions of the bill would include a civil fine of up to $5 million or imprisonment of up to 20 years, or both (except when such a person is an entity, a fine of up to $25 million).

Efforts are also underway in the US House of Representatives to rein in meme coin proliferation, at least among government officials. On February 27, 2025, Representative Sam Liccardo (member of the House Financial Services Committee and its subcommittee on Digital Assets, Financial Technology, and Artificial Intelligence) introduced the Modern Emoluments and Malfeasance Enforcement (MEME) Act. The bill seeks to prevent public officials from leveraging their political authority for financial gain, whether via meme coins or any other financial instrument. The MEME Act would prohibit the president, vice president, members of Congress, senior executive branch officials, and their spouses and dependent children from issuing, sponsoring, endorsing, or promoting a security, future, commodity, or digital asset. Violators would be subject to criminal and civil penalties under the bill. The bill has not yet secured bipartisan support.

The Crypto Task Force Makes Headway

Commissioner Peirce continues to shape the SEC’s digital asset policy, and the members of the SEC’s newly-established Crypto Task Force. “The Crypto Task Force,” she added in the announcement, “exhibits deep expertise and an enthusiastic commitment to identifying . . . workable solutions to difficult crypto regulatory problems.”

The Statement and other Crypto Task Force developments reflect the sea change in policy at the SEC that Commissioner Peirce described in a statement issued on the same day, regarding the dismissal of an SEC enforcement action against a major crypto exchange. Under the previous administration, “policy staff could not engage productively with the public to build a workable regulatory framework for crypto” due to the lack of such a directive from SEC leadership. With the new administration and new SEC leadership at the helm, it is now “the policy staff who will take the lead in engaging with the public to build a regulatory framework that serves the American public.”

The SEC’s mission has always been (i) protecting investors; (ii) maintaining fair, orderly, and efficient markets; and (iii) facilitating capital formation. Indeed, in a February 24, 2025, speech, Acting Chairman Mark Uyeda stated his first priority is for the SEC to “return[] to its narrow mission to facilitate capital formation, while protecting investors and maintaining fair, orderly and efficient markets” (for more information, see this Latham blog post). The SEC’s new leadership and policy direction (especially as it relates to crypto) signals that consistent with the new administration, facilitating capital formation has emerged as the SEC’s foremost priority.

Footnotes

[1] 328 U.S. 293 (1946) (holding that a contract, scheme, or transaction involves an investment contract if a purchaser (1) invests money, (2) in a common enterprise, and (3) is led to expect profits solely from the efforts of the promoter or third party).

[2] Defined as when a “person engages in deceptive or fraudulent practice with the intent to deceive another in relation to the purchase, sale, exchange, transfer, offering, storage, destruction, or any relevant act related thereto of virtual tokens.”

[3] Defined as “the act of a developer developing a class of virtual tokens, owning more than ten percent of the supply of such class of virtual tokens, and selling more than ten percent of the total supply of such class of virtual tokens within a five-year period from the date of the last sale of the same.” However, there is an exclusion for NFTs “where a developer has created less than one hundred non-fungible tokens that are regarded as part of the same series or class of non-fungible tokens or where such non-fungible tokens regarded as part of the same series or class are valued at less than twenty thousand dollars at the time the rug pull occurs.”

[4] Defined as when a “person obtains or discloses to another person or misuses another’s private key without their affirmative consent.”

[5] Defined as when a “developer does not publicly and conspicuously disclose the number of tokens they own in such class of virtual tokens they developed on the landing page of such developer’s primary website.”

Jenny Cieplak, Zachary Fallon, Ghaith Mahmood, Yvette D. Valdez, and Stephen P. Wink are Partners and Deric Behar is Knowledge Management Counsel at Latham & Watkins LLP. This post first appeared on the firm’s Global Fintech & Digital Assets Blog.

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