Memecoin Suits Test Trump’s SEC on Pivot in Crypto Enforcement

Securities lawsuits targeting memecoins are testing how digital asset losses should be litigated as President Donald Trump‘s administration signals a softer approach to crypto.

A string of securities lawsuits filed over the past couple of months turn on whether memecoin trades should be treated as security transactions. Speculative and volatile—even when compared to other digital assets—memecoins are crypto tokens that gain traction through internet popularity and collect buyers by tapping into their fear of missing out.

Two lawsuits brought since December go after Hawk Tuah memecoin promoters, named for the so-called “Hawk Tuah Girl” Haliey Welch. Two target pump.fun, a Solana-blockchain based memecoin platform. The first, filed in the US District Court for the Southern District of New York on Jan. 16, cites the Peanut the Squirrel memecoin and the second last week aims at all the platform’s tokens. Former Olympic gold-medalist Caitlyn Jenner and her business partner were sued over promoting her memecoin, $JENNER, in November.

“Memecoins really don’t fit within the statutory definition of a security because there is no expectation of profit or that other people are going to be doing some kind of work or project to make the token more valuable,” said Howard Fischer, a partner at Moses & Singer LLP and a former Securities and Exchange Commission senior trial counsel. Under a traditional analysis, most crypto would be considered a security, he said.

That’s where context matters, said Andrew Verstein, a UCLA Law professor and faculty co-director of the Lowell Milken Institute for Business Law and Policy. Like collectible baseball cards, people often buy memecoins for fun without an expectation of returns based on what the promoter is marketing, he said.

When the seller isn’t promising returns, then it’s probably not a security, he said. “Whereas if they actually go on the news and tout how they’re going to make money for you, and they tell you about the great trading environment they’ve constructed that’s going to make the value go up and up, then it’s likely to be a security and subject to normal securities rules and laws.”

Crypto trading’s status has divided courts and led to highly-watched decisions, including in a nuanced 2023 one with Ripple Labs Inc. and its XRP token in which a federal judge said that selling through secondary trading platforms didn’t constitute securities transactions while direct sales to institutional investors were.

Citing the XRP litigation differential, Burwick Law partner Max Burwick compared context to the napkin test in contract law.

“So in that same way, no digital asset, in and of itself, is a security or a commodity or any other asset subject to regulation: It’s what happens with the facts that are surrounding that particular asset that change the legal categorization,” he said. The duo of Burwick’s firm and Wolf Popper LLP have represented plaintiffs in four of these lawsuits since December.

Crypto-Friendly Administration

There could be a rise in memecoin litigation because sellers might expect a friendlier environment under Trump, potentially leading to increased abuse that attracts lawsuits, Verstein said.

Trump, who launched his own $TRUMP memecoin in January, is embracing crypto in a turnaround from the Biden administration SEC, which brought numerous enforcement actions against crypto platforms to the industry’s chagrin, said Jack M. Graves, who teaches at Syracuse University College of Law.

“I think there was a logic to it—[Chair Gary] Gensler didn’t want to get caught up in trying to regulate, didn’t want to get caught up on political question doctrine,” he said.

In week one, Trump issued an executive order for a crypto working group and potential digital asset stockpile. The SEC under Acting Chairman Mark T. Uyeda announced a task force to build a crypto-specific regulatory pathway on day two of the administration. The commissioner leading the task force, Hester Peirce, had been skeptical about the previous SEC crypto enforcement agenda.

“I think that the dissents of Commissioners Uyeda and Peirce in many of these crypto enforcement actions make clear that the current majority of the SEC doesn’t approve of the way in which the enforcement power was used against crypto firms,” said Mark Perlow, a partner at Dechert LLP and former senior counsel in both the SEC’s Office of the General Counsel and the Division of Enforcement.

The SEC declined to comment. The White House didn’t respond to emails seeking comment.

Broadly, the number of crypto-related securities class action filings have declined from 2023 to 2024, according to Cornerstone Research. Questions about crypto transactions’ status remain before courts, including whether the Second Circuit should accept an interlocutory appeal from Coinbase Inc., the largest crypto platform in the US, as it fends off an SEC suit started under the previous administration.

Trump’s memecoin ballooned to all time highs ahead of the Jan. 20 inauguration, only to collapse soon after. On Tuesday, Trump’s memecoin was trading at about 76% below its peak while Melania Trump’s $MELANIA memecoin was down from its height by 87%, according to data tracked by CoinGecko as of early afternoon Eastern Time.

“The irony of all of this is that the president has said this is going to be a very friendly administration for the crypto industry,” Fischer said. “And yet by him and his wife issuing a memecoin which has seen tremendous volatility in a little over a week, what they’ve in fact done is create a lot of bad press for digital assets as a permanent asset class.”