The New York State Department of Financial Services (“Department”) is closely monitoring the recent, and rapid, proliferation of sentiment-based virtual currencies, commonly referred to as “meme coins.”  The platforms that enable the creation of these coins are not licensed by the Department and therefore are not subject to the rigorous virtual currency standards in place to protect consumers in the State.  In addition, these coins often are owned by a few individuals, or groups of individuals associated with the creator, and are not broadly traded.  Moreover, sentiment-based coins tend to be subject to significant price volatility.  New Yorkers should be aware that these coins present exceptional risk of fraud and loss of funds.

New Yorkers are advised that the coins described above may be part of schemes in which the creators or their associates artificially inflate the price of the coins and then sell their own coins rapidly at an inflated price, reaping substantial profits while causing the price to crash (often called “pump-and-dump schemes” or “rug pulls”).  As part of these schemes, creators or insiders may engage in manipulative “wash trades” that create the false appearance of market activity at higher prices.  It may often be difficult for the public to tell which coins are being manipulated, but consumers should be especially wary of the recent proliferation of sentiment-based coins that are created through unlicensed platforms that enable coin creation in a few clicks by individuals with no technical expertise.  New Yorkers are further advised that even on regulated platforms, the prices of these coins are volatile and unpredictable and may experience significant decreases over a short period of time.  The list of licensed or chartered Virtual Currency Business Entities can be found in the “Regulated Entities” section of the New York State Department of Financial Services website.