- SEC’s new memecoin guidance indicates a significant shift away from Gensler’s broad regulatory stance, suggesting secondary-market transactions in digital assets aren’t securities.
- The guidance clarifies that memecoins lack the “pooling” element required for the Howey test’s “common enterprise” requirement, contradicting the SEC’s previous position.
- This regulatory reversal could explain the SEC’s recent dismissals of several crypto-related cases and may limit future enforcement actions against secondary-market transactions.
The Securities and Exchange Commission’s recent memecoin guidance represents more than a simple regulatory clarification—it signals a substantial retreat from the agency’s aggressive crypto enforcement strategy. On February 27, SEC staff released guidance stating that memecoins, digital assets inspired by internet trends that attract enthusiastic online communities, generally aren’t sold as securities.
This guidance marks a notable departure from the regulatory approach championed by former SEC Chair Gary Gensler, who had sought to extend the agency’s jurisdiction across virtually the entire digital asset ecosystem. The implications potentially extend far beyond just memecoins, creating ripples throughout cryptocurrency markets.
At the core of this shift is the Supreme Court’s “Howey test,” the legal framework determining whether transactions qualify as investment contracts subject to securities regulations. The test requires an investment of money in a common enterprise, with profit expectations derived from others’ efforts.
In previous enforcement actions against crypto exchanges, defendants consistently argued that secondary-market transactions lacked the necessary “investment in a common enterprise” since investors’ funds weren’t pooled by developers into a shared fund for business development. The SEC had previously dismissed this argument, claiming in its case against Kraken that “pooling of resale proceeds” by developers was not “required under Howey.”
The new guidance directly contradicts this position. It explicitly states that memecoin purchasers make no investment in a common enterprise precisely because their funds “are not pooled together to be deployed by promoters or other third parties for developing the coin or a related enterprise.” The SEC further explains that memecoin values derive from “speculative trading and the collective sentiment of the market, like a collectible,” rather than profits from others’ efforts.
This reversal carries significant implications for cryptocurrency exchanges and secondary-market transactions. When traders purchase digital assets on exchanges, their funds similarly aren’t pooled for development purposes. By the SEC’s new logic, these transactions would also fall outside the Howey test’s requirements, potentially placing them beyond the agency’s regulatory reach.
This doctrinal shift may explain why the SEC has recently dismissed several enforcement cases involving secondary-market transactions and paused proceedings in others. The agency appears to be quietly retreating from its previous aggressive stance.
The SEC did include caveats, noting that the guidance “represents the views of [agency] staff” rather than the Commission itself, and “has no legal force or effect.” They also attempted to restrict the guidance specifically to “the offer and sale of meme coins” under particular circumstances.
Despite these hedges, constitutional principles of due process and fair notice may prevent the agency from later reversing course and imposing retroactive liability. Additionally, while courts aren’t bound by the SEC’s guidance, the agency’s new position on pooling could significantly weaken private plaintiffs’ claims that most digital assets qualify as securities.
This memecoin guidance aligns with other recent SEC actions suggesting a retreat from the regulation-by-enforcement approach that characterized the Gensler era. For the cryptocurrency industry in the United States, which has long sought regulatory clarity, the guidance represents a meaningful step forward in establishing more predictable legal and policy frameworks.
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