SEC: Meme tokens do not fall under the definition of a security

What’s new? The US Securities and Exchange Commission (SEC) has issued a statement saying that meme tokens do not fall within the definition of a security because they do not generate income or transfer rights to future income, profits, or assets of a business.

SEC statement

What else is known? Based on the statement, participants in the offering and trading of meme tokens do not need to register their transactions with the SEC under the Securities Act of 1933. As a result, the federal securities laws do not protect participants in this market.

“The offer and sale of meme coins does not involve an investment in an enterprise nor is it undertaken with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others,” the SEC notes.

All of these criteria are contained in the Howey Test, which the regulator uses to determine whether an asset is an investment contract. Under it, an asset is recognized as a security if investors expect profits from the activities of third parties, as works for stocks in the stock market.

However, the SEC warns that not all meme tokens are exempt from securities laws. At issue are cases where a project is falsely positioned as a meme token to conceal the fact that it offers unregistered securities.

SEC creates division to fight cryptocurrency fraud

Mark Uyeda emphasized the new division’s role in protecting investors and maintaining market efficiency

Read more

In addition, fraudsters in the sale and promotion of meme tokens will still be prosecuted under other rules.

Following Gary Gensler’s resignation as SEC chairman, US President Donald Trump appointed several cryptocurrency lawyers to senior positions at the regulator.

Mark Uyeda, who would later cede the post to Paul Atkins, became acting chairman, while SEC Commissioner Hester Peirce led the cryptocurrency task force. Thus, the agency has taken a more cryptocurrency-friendly stance.

Over the past week, the SEC has withdrawn cases and dropped investigations against crypto exchanges Coinbase, Gemini, and Uniswap, crypto wallet MetaMask, NFT marketplace OpenSea, and broker Robinhood. However, to date, there is still an active case against fintech company Ripple, which issues the XRP token.

Crypto task force within the SEC will develop new rules for the industry

Group head Hester Peirce criticized the regulatory approach formed by former chairman Gary Gensler

Read more

Earlier this week, California House of Representatives member and Democrat Sam Liccardo announced a bill that would ban the president, members of Congress, and other high-ranking officials, as well as their spouses and children, from issuing or promoting securities and cryptocurrencies, including meme tokens.

Work on the document began after Trump and his wife Melania launched their own meme tokens shortly before the inauguration.