Regulating Celebrity-Backed Crypto Offerings: SEC’s New Stance on Meme Coins

The article examines the recent SEC announcement that meme coins are not classified as securities, highlighting the implications for celebrity endorsements in crypto assets. It discusses the SEC’s regulatory framework, historical scrutiny on anti-touting laws, and the Canadian regulatory environment. Both US and Canadian regulations concerning market manipulation are also analysed, indicating a shift in how celebrity influence in crypto investments may be monitored going forward.

On February 27, 2025, the SEC’s Division of Corporation Finance issued a staff statement asserting that ‘meme coins’ generally do not qualify as securities under federal law. This determination stems from the established legal precedent in SEC v. WJ Howey Co., indicating that these assets fall outside the SEC’s jurisdiction. While not formal regulations, this statement signals a shift in the SEC’s stance towards regulating celebrity-promoted crypto ventures, particularly those involving meme coins.

Celebrity-backed crypto assets leverage the influence of well-known figures to draw investors, offering substantial returns. Despite their potency in enhancing the credibility of these assets, such endorsements previously attracted SEC scrutiny due to potential violations of securities laws. The collapse of FTX Trading Ltd. highlighted these risks, as the previously reputable exchange faced legal ramifications for mismanagement and misappropriation of funds, with numerous celebrity endorsements complicating the regulatory landscape.

The SEC’s efforts in regulating celebrity endorsements typically hinge on anti-touting laws, which ensure clear disclosure of compensation for promotional activities involving securities. As part of this, Section 17(b) of the US Securities Act mandates that endorsers disclose any compensation received. In 2017, the SEC warned against the promotion of ICOs by celebrities without such disclosures, reaffirming the necessity of compliance with federal laws.

Similar attention to marketing practices has emerged from the US Financial Industry Regulatory Authority (FINRA). In 2021, FINRA launched exams to scrutinise how firms engage and compensate social media influencers for promoting financial products. Approximately 70% of reviewed communications regarding crypto assets revealed potential violations of FINRA rules, pointing to misleading claims and omissions.

Within Canada, the anti-touting regulatory framework is less stringent compared to the US. However, the Canadian Securities Administrators (CSA) have issued warnings against promotional activities that mislead investors. The CSA’s Staff Notice 51-356 emphasises the need for transparency in promotions, including disclosures relating to third-party compensation.

In September 2021, the CSA issued guidance addressing deceptive marketing practices by crypto-trading platforms, further outlining standards for advertising and promotion. The Ontario Securities Commission has similarly noted the need for firms to monitor marketing collaborations and ensure transparent communication regarding compensation and conflicts of interest.

Concerning market manipulation, both US and Canadian laws prohibit false statements and deceptive practices during securities transactions. In the US, Section 10(b) of the Securities Exchange Act and Rule 10b-5 encompass these protections. Even amidst evolving regulatory priorities, recent SEC actions illustrate continued reliance on these standards, as seen in insider trading cases involving influential figures.

In Canada, market manipulation issues are addressed within the National Instrument 23-101 and provincial laws. While regulatory bodies have yet to pursue significant cases against influencers for manipulation, they are becoming increasingly aware of potential risks within the context of evolving market practices concerning crypto assets.

The SEC’s recent statements introduce ambiguity regarding the regulation of celebrity-endorsed crypto, especially meme coins, leading to uncertainties about future regulatory strategies. In Canada, the unresolved classification of meme coins could prompt a more cautious regulatory approach towards celebrity endorsements in the crypto sphere, particularly as social media continues to shape investor decisions.