SEC Says Most Meme Coins Do Not Qualify as Securities

The U.S. Securities and Exchange Commission (SEC) declared on February 27 that most meme coins do not meet the definition of securities under federal law, thus they are exempt from registration requirements. SEC clarified that Meme coins are outside the securities regulations According to the SEC's Division of Corporate Finance, meme money, defined as crypto assets tied to internet culture or trends, has value primarily from speculation and community involvement rather than utility These assets, which are often compared to collectibles, There is no mechanism for generating profits or entitlement to profit, which distinguishes them from traditional securities. The SEC has adopted the Howey Test, a regulatory framework that determines whether an asset qualifies as an investment contract. This test found that meme coin transactions typically don't involve joint investments or rely on the developer's management efforts to make a profit. Instead, price movements stem from market sentiment and trading activity. The agency emphasized that meme coin buyers do not invest in a common business, and promoters rarely engage in efforts to directly impact asset values. Without these factors, transactions would not be classified as securities, saving issuers from having to register with the SEC. However, the SEC has warned that products mislabeled as meme coins to evade securities laws will be subject to scrutiny. Fraudulent activities, although beyond the SEC's jurisdiction here, may still be prosecuted by other federal or state authorities. This guidance provides clarity amid the explosive interest in meme-driven cryptocurrency assets but does not shield buyers under federal securities laws. The move follows the Democrats-proposed MEME Act, which aims to prevent members of Congress, presidents and their families from selling meme virtual currencies. While the guidance clarifies the rules for odd cryptocurrencies, it does not protect buyers from federal investor protections.