Entertainment or Investment? The SEC’s Stance on Meme Coins as Securities

On February 27, 2025, the Securities and Exchange Commission’s (SEC) Division of Corporation Finance (Corp Fin) published a new staff statement intended to clarify the application of federal securities laws to meme coins.

What is a ‘Meme Coin’?

A “meme coin,” according to Corp Fin, “is 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.” According to the Corp Fin staff statement, meme coins generally are tokens that:

• Have limited or no functionality
• Experience significant market price volatility
• Are marketed for entertainment, social interaction, and cultural purposes
• Have value primarily driven by market demand and speculation, much like collectibles

Not “Securities” by Default

Corp Fin’s statement clarifies that “a meme coin is not itself a security.” Like other crypto assets, a meme coin is not one of the financial instruments specifically enumerated in the definition of “security” under Section 2(a)(1) of the Securities Act and Section 3(a)(10) of the Securities Exchange Act of 1934.

Instead, the guidance assesses whether meme coin offers and sales align with the principles governing what constitutes an “investment contract” as set forth in SEC v. W.J. Howey Co. (Howey). Under Howey, a crypto asset offer or sale may be an “investment contract” subject to the federal securities laws if all four elements are satisfied:

1. An investment of money
2. In a common enterprise
3. With a reasonable expectation of profit
4. Derived solely or predominantly from the efforts of others

The Corp Fin staff outlines the factors that, in their view, would show that the offer and sale of meme coins (as described in the statement) often will not satisfy the Howey elements:

• Meme coin purchasers may not be making an investment in an enterprise. Their funds are “not pooled together to be deployed by promoters or other third parties for developing the coin or a related enterprise,” according to the guidance.

• Any expectation of profits that meme coin purchasers have may not be derived from the efforts of others. As Corp Fin notes, a meme coin’s value “is derived from speculative trading and the collective sentiment of the market, like a collectible.”

• Meme coin promoters generally do not undertake (or promise) managerial and entrepreneurial efforts from which purchasers could reasonably expect profit. Corp Fin notes, for example, “if the promoters’ efforts are limited primarily to hyping the meme coin on social media and online forums and getting the coin listed on crypto trading platforms, then there are not likely to be sufficient indicia to establish that purchasers had a reasonable expectation of profits based on the efforts of the promthseoters.”

Caveats and Limitations

The statement does not extend to coins that deviate materially from the described attributes of meme coins. Nor does it shield fraudulent or manipulative conduct from potential enforcement under federal or state laws.

Moreover, the SEC emphasizes it will still evaluate the “economic realities” of each transaction to determine whether a meme coin is truly outside the scope of federal securities laws.

Key Observations and Looking Ahead

1. The SEC Affirms Howey’s Transaction-Based Approach
   Reflecting the consensus of courts that have assessed this question, Corp Fin’s guidance underscores that Howey applies to a transaction in which an asset is offered and sold—and not to the asset itself.
   
   
2. Disclaimers Help, But Do Not Guarantee Immunity
   Corp Fin points to common statements about “no expectation of profit,” “no utility,” and “purely for entertainment” as signals that no significant managerial efforts exist, citing the examples below:
   
   • “Purchasers should not expect to profit or generate a return through receipt or ownership of the coins”
   • “No one intends to exert any efforts or provide any assistance in bringing about a profit or return for holders of the coins”
   • “The coins have no use or functionality; purchasers may lose all of the money used to purchase the coins” and
   • “The coins are intended for entertainment purposes only”

Interestingly, in a footnote, the guidance suggests that if promoters primarily engage in “hyping the meme coin on social media and online forums and getting the coin listed on crypto trading platforms, there are not likely to be sufficient indicia to establish that the purchasers had a reasonable expectation of profits based on the efforts of the promoters,” and thus the transactions would not satisfy all the Howey factors.

Nonetheless, Corp Fin does not present these statements as a “safe harbor.” Even projects that make these disclaimers may nevertheless run afoul of Howey’s transactional analysis depending on the total facts and circumstances of the particular offer or sale and how a given court applies the Howey factors.

Historically, the Enforcement Division has not always followed staff guidance from Corp Fin—and private plaintiffs could still bring a suit under securities laws even if projects appear to fall within this guidance. Ultimately, if meme coin transactions are challenged, it is up to a court to apply the Howey factors to decide whether the transactions constitute offers or purchases of securities.

Projects should therefore view the Division’s guidance as helpful—but not absolute—protection against future investigations, and helpful guidance that can be cited in proceedings challenging meme coin transactions.

What’s Next?

Corp Fin’s statement clarifies that meme coin projects, as described, may not be considered securities offerings under federal law. However, courts will assess the economic realities of each transaction, and fraud and manipulative practices remain subject to enforcement under other laws.

Market participants should carefully document disclaimers, avoid making overt profit promises, and ensure promotional efforts do not resemble active managerial involvement. While the guidance provides a useful reference, it does not eliminate legal risk, and projects should seek legal advice.