The SEC’s Stance on Memecoins: A Shift in Regulatory Perspective
The U.S. Securities and Exchange Commission (SEC) has officially distanced itself from memecoins, signaling a significant shift in its regulatory approach. In a recent staff statement published by the SEC’s corporate finance division, memecoins were described as a “type of crypto asset inspired by internet memes, characters, current events, or trends.” The SEC clarified that these digital tokens are promoted to foster an enthusiastic online community that engages in their purchase and trading. However, due to their “limited or no use or functionality,” memecoins do not meet the criteria of a security as defined by the Howey Test, thus placing them outside the SEC’s jurisdiction.
This statement formalizes earlier remarks made by Commissioner Hester Peirce, who heads the SEC’s newly established Crypto Task Force. This division has been at the forefront of the agency’s evolving stance on cryptocurrency regulation since its inception in January. During a recent interview with Bloomberg TV, Peirce expressed that many of the memecoins currently available on the market indeed fall beyond the SEC’s regulatory reach.
Peirce articulated her views in a roadmap for crypto regulation released earlier this month, stating, “If individuals wish to invest in a token or product that lacks a clear long-term value proposition, they should feel empowered to do so. However, they should also be prepared for the possibility that the price may subsequently decline.” She emphasized the importance of personal responsibility, noting, “In this country, people generally have the right to make their own decisions. Yet, with this liberty comes the equally important expectation that individuals must make informed choices without relying on government oversight for guidance or expecting bailouts when those choices lead to unfavorable outcomes.”
While such interpretations from the SEC do not carry the formal weight of regulations, industries that fall under the oversight of the SEC and other federal authorities closely monitor these staff statements. A notable example of this occurred with the controversial Staff Accounting Bulletin No. 121 (SAB 121), which caused considerable unrest within the crypto sector until it was rescinded by the current SEC leadership.
Importantly, while Commissioner Peirce has underscored that American investors are ultimately responsible for conducting their due diligence regarding the tokens they purchase, the SEC has not entirely ruled out the potential for intervention. The agency retains enforcement capabilities in instances where memecoins are used as a means to circumvent securities laws.
The staff statement specifically notes, “Notwithstanding the foregoing, this statement does not extend to the offer and sale of memecoins that do not align with the descriptions provided above, or products labeled as ‘memecoins’ that aim to evade federal securities laws by disguising a product that would otherwise qualify as a security.” The statement further articulates that the Division will assess the economic realities of each individual transaction.
