Memecoins: Has Trump Used A Loophole In Securities Law?

Anonwassielawyer begins with a provocative summary: “Trump launched a memecoin that ran to over $70 billion from the US of A. Is crime legal now?” According to his analysis, the legal foundation for such launches has always existed, rooted in the distinction between securities and non-securities in US law.

Donald Trump's recent foray into the world of cryptocurrency with the launch of his meme coin, TRUMP, has sparked widespread interest and curiosity. A comprehensive analysis by Anonwassielawyer (@wassielawyer), a prominent crypto and finance attorney, has shed light on the legality of Trump's launch, explaining how it managed to slip through the cracks of US securities laws.

Memecoins: Has Trump Used A Loophole In Securities Law?

Anonwassielawyer begins his analysis with a provocative summary: “Trump launched a memecoin that ran to over $70 billion from the US of A. Is crime legal now?” His analysis, however, sets out to demonstrate that the legal foundation for such launches has existed all along, rooted in the distinction between securities and non-securities in US law. Memecoins, which lack inherent utility or revenue-sharing mechanisms, generally do not meet the criteria of an “investment contract” as outlined in the Howey Test.

For a token to be considered a security, it must meet specific criteria, including an investment of money in a common enterprise with a reasonable expectation of profits derived from the efforts of others. In the case of memecoins like TRUMP, these elements are conspicuously absent. The analysis breaks this down with an example: if a token is sold with the promise that proceeds will fund a project expected to generate profits shared with investors, the token would be considered a security.

However, if a token is sold purely as a speculative asset, with no underlying project or economic value, it falls outside this classification. TRUMP clearly belongs in the latter category. As Anonwassielawyer explains, “If I asked you to buy a memecoin, we aren’t expecting the proceeds to go towards any project. It simply goes to the seller who sells it because he thinks the price will go down. You are simply buying it because you think there’s a next marginal buyer who will take it from you at a higher price. There is no investment contract. There is no underlying value. It’s pure speculation on attention. Thus—not a security.”

While the legal status of memecoins is relatively straightforward, the broader implications for the crypto industry are more complex. Projects designed to create genuine value often face significantly higher regulatory hurdles. Tokens that accrue revenue, offer governance rights, or otherwise resemble traditional financial instruments are far more likely to fall within the purview of securities law. This reality has led to growing frustration within the industry, particularly regarding the enforcement policies of regulators like SEC Chair Gary Gensler. As Anonwassielawyer notes, “A lot of the hatred towards Gary Gensler isn’t because he enforced securities laws; it’s because he claimed everything was a security even though they may not have been.”

The contrasting approaches taken with TRUMP and Trump's other crypto initiative, World Liberty Finance (WLFI), illustrate this regulatory divide. While TRUMP operates as a speculative memecoin, WLFI adheres to a strict compliance framework designed to satisfy US securities laws. The WLFI token, for instance, is explicitly structured to be non-transferable for at least 12 months, a safeguard to ensure compliance with Regulation D and Regulation S. These regulations govern sales to US accredited investors and non-US persons, respectively.

The terms of WLFI explicitly state, “If transferability of WLFI is sought to be unlocked in the future through protocol governance procedures, such unlock would only be permitted if determined not to contravene applicable law.”

Another layer of complexity involves the use of offshore structures, often misunderstood as tools for regulatory evasion. Anonwassielawyer clarifies that these entities serve legitimate purposes, primarily governance and tax optimization. Securities laws are territorial, meaning that setting up in offshore jurisdictions like the Cayman Islands does not exempt projects from compliance if their tokens are sold to US persons. However, offshore structures can provide tax advantages, particularly by deferring taxable events associated with token generation and disposal until the assets are onshored.

For the crypto industry, the lessons from Trump's initiatives are clear but sobering. Memecoins may represent the lowest common denominator of the market, but their simplicity shields them from regulatory scrutiny. Meanwhile, projects striving to deliver real utility must navigate an increasingly complex and inconsistent regulatory environment. Anonwassielawyer emphasizes this point, advising caution and compliance: “Memecoins are very cool but no fraud please. Securities analysis should be a bit more relaxed but can be sensible. We still have to be careful when selling tokens with security-like features and follow the usual frameworks for such.”

At press time, TRUMP traded at $39.26.