SEC Publishes Final Guidance on the Classification of Meme Coins

Meme coins have their place in pop culture, we have Elon Musk's infamous Dogecoin, the Shiba Inu coin, Grimace coin, a Pepe (the Frog) coin

US Securities and Exchange Commission (SEC) regulators have published a final statement regarding whether meme coin holders can expect the same protections under federal security laws as holders of other crypto asset securities.

The Division's explanation, which is posted on the SEC website, defined meme coins as crypto assets "inspired by internet memes, characters, current events, or trends, and typically purchased for entertainment, social interaction, and cultural purposes."

It was further stated that meme coins, in most instances, have limited use or no functionality and are primarily used by promoters to drum up excitement for a specific themed coin, and to get people to buy it and engage in trading.

"Given the speculative nature of meme coins, they tend to experience significant market price volatility, and often are accompanied by statements regarding their risks and lack of utility," the SEC said.

Labelling meme coins as more of a "collectable" than an actual investment, the statement explained that a meme coin's purchasers and/or holders rarely expect to make profits off of meme coins from the "managerial efforts of others," unlike other crypto investments.

"The value of meme coins is derived from speculative trading and the collective sentiment of the market," it said.

The SEC did, however, highlight the fact that even though meme coins are not subject to the same federal security laws as registered crypto assets, other U.S. federal and state agencies can still go after those who engage in fraudulent conduct when offering or selling the unique coins.

This falls in line with some of the investigations launched by the Commission in the past several years, the most publicized being a 2021 investigation and subsequent lawsuit against Elon Musk over charges of market manipulation and defrauding investors.

In what regulators called "a Dogecoin pyramid scheme," the SEC accused Musk of falsely hyping up his followers on social media to buy up the Dogecoin, artificially inflating its value, reputation, and price. Investors who bought into the sham, eventually lost their money when the coin eventually crashed.

It was also noted that attempting to pass off a crypto asset as a meme coin to avoid being subject to federal security laws would also be subject to prosecution.