Meme Coin Pump and Dumps

With the proliferation of outstanding cases and investigations into major cryptocurrency exchanges, the SEC made an unofficial stance through their staff statement published on February 27, 2025—most meme coins are not considered securities.

A “meme coin” is a type of  “crypto asset inspired by internet memes, characters, current events, or trends for which the promotor seeks to attract an enthusiastic online community to purchase the meme coin and engage in its trading. ”For example, the Dogecoin (“DOGE”) is based on the popular Doge internet meme and the Pepe Coin (“PEPE”) is based on the classic internet meme, Pepe the Frog. Meme coins are driven by communities on social media websites like Reddit, Discord, and X (Formerly Twitter), united by shared interests in internet culture and entertainment. Because meme coins are community driven, they are also known for its high volatility and trading is often speculative.

The issue with meme coins is its susceptibility to pump and dump schemes. Oftentimes, the prices are artificially inflated, coordinated by the creators of the coin who would promote the meme coin heavily to their followers.Once the price is raised, the creators would rapidly sell their coins for profit, causing the price to crash substantially.

A meme coin does not constitute a note, stock, or treasury as defined in the Securities Act of 1933.However, some meme coins fall within the meaning of “investment contract,” which is defined as “a contract, transactions, or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promotor or a third party.”

The Howey test further clarifies what constitutes as investment contracts through the following elements: (1) whether the scheme involves an investment of money, (2) in a common enterprise (3) with profits to come solely (4) from the efforts of others, and if that test is satisfied, “…it is immaterial whether the enterprise is speculative or nonspeculative, or whether there is a sale of property with or without intrinsic value.”

Although the staff statement stated meme coins do not meet all the elements in the Howey test, rapid evolvements in the legal landscape regarding digital assets, including meme coins could broaden the interpretation of securities. The statement released by the staff of the Division of Corporate Finance of the SEC is not a rule, regulation, or guidance—there is no legal standing.

There are securities class actions pending in New York due to pump and dump schemes by falsely promoting meme coins. Notably, a complaint was filed on April 19, 2025, in the U.S. District Court for the Southern District of New York against crypto exchange Meteora and former CEO, Benjamin Chow. Meteora and Chow created a meme coin, $M3M3, promoted the coin to be “uniquely reliable,” and then sold their coins for profits right before the price crashed. Clarke et al. v. Chow et al., No. 25-cv-3268, complaint filed, 2025 WL 1161286 (S.D.N.Y. Apr. 19, 2025).

Concerns about the rise of meme coins have prompted the New York State Department of Financial Services to release a consumer alert, stating they are closely monitoring the meme coins and advised New Yorkers to be aware of the risks of fraud and “pump-and-dump” schemes.

Ultimately, subsequent developments in regulations are likely to be made as meme coins continue to lead to major financial losses and securities fraud.