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Yesterday, Corp Fin issued a “Staff Statement on Meme Coins” in which it said that it did not view so-called “meme coins” as securities for purposes of the federal securities laws.  The Statement defined meme coins as “a type of crypto asset inspired by internet memes, characters, current events, or trends for which the promoter seeks to attract an enthusiastic online community to purchase the meme coin and engage in its trading.” It went on to analogize meme coins to collectibles, because they are usually purchased for “entertainment, social interaction, and cultural purposes, and their value is driven primarily by market demand and speculation.”

The Statement then analyzed the legal status of meme coins under the federal securities laws and concluded that they were not “securities” under the Howey Test . This excerpt summarizes the basis for that conclusion:

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. First, meme coin purchasers are not making an investment in an enterprise. That is, their funds are not pooled together to be deployed by promoters or other third parties for developing the coin or a related enterprise. Second, any expectation of profits that meme coin purchasers have is not derived from the efforts of others. That is, the value of meme coins is derived from speculative trading and the collective sentiment of the market, like a collectible. Moreover, the promoters of meme coins are not undertaking (or indicating an intention to undertake) managerial and entrepreneurial efforts from which purchasers could reasonably expect profit.

The Staff cautioned that meme coins that don’t fit the description outlined in the statement may be securities and will be evaluated based on the economic realities of a particular transaction.

– John Jenkins