Credit; International New York Times
The Securities and Exchange Commission on Thursday said so-called memecoins -- novelty digital assets -- are not subject to regulatory oversight because they are not considered securities.
The determination could have big ramifications for the crypto industry and President Donald Trump, who issued his own memecoin days before his inauguration.
The SEC's policy on memecoins is consistent with the light regulatory approach that Trump promised to take toward the crypto industry during his campaign.
Trump and his family firmly embraced digital currencies last year by teaming up with a new digital assets company, World Liberty Financial. $Trump, the memecoin that Trump introduced during preinaugural festivities in January, spurred controversy because it swung wildly in value and generated hefty trading fees for Trump.
The SEC's policy statement did not refer to Trump's memecoin or any other specific digital novelty item. But the commission clearly acknowledged the risk to investors who put money into such products, even as it said it would not regulate them.
"Although the offer and sale of memecoins may not be subject to the federal securities laws, fraudulent conduct related to the offer and sale of memecoins may be subject to enforcement action or prosecution by other federal or state agencies," said the statement, from the SEC's division of corporation finance.
In reaching its conclusion, the SEC employed a nearly century-old Supreme Court decision to determine that a memecoin should not be considered an investment contract and therefore subject to regulatory oversight.
Under Gary Gensler, who served as SEC chair under President Joe Biden, the regulator had used that same Supreme Court case to argue that most digital assets are securities and subject to regulation.
The SEC, apparently worried that traders and speculators could use its rationale to evade regulation, said it would look closely at any new product that tried to label itself a "memecoin."
The agency has moved quickly to dismantle the aggressive approach taken by Gensler in regulating cryptocurrencies. His enforcement actions angered the crypto industry and led many of its investors to contribute mightily to the campaign of Trump, who at one time was a crypto critic.
Also on Thursday, the SEC officially moved to dismiss its enforcement lawsuit against Coinbase, one of the nation's largest crypto firms. The SEC also has told a number of crypto companies that it was ending investigations into their activities.
The SEC also said in a court filing this week that it was trying to reach a settlement in a civil fraud case it filed against Justin Sun, a crypto investor. Sun also is an adviser to World Liberty and a significant investor in its digital token. The charges against him do not involve his investment with World Liberty.