• NYDFS issued an Industry Letter and consumer bulletin that warns licensees and consumers to exercise caution regarding meme coins. According to the Industry Letter:
• “The New York State Department of Financial Services (“Department”) is closely monitoring the rapid proliferation of sentiment-based virtual currencies. 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 we have 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.
• “Coins that carry these characteristics generally are incompatible with the Department’s Guidance on Coin-Listing and on Market Manipulation, in that they carry significant regulatory, market, and legal risk, and may be favorable instruments for the facilitation of illicit finance. Certain of these coins have reportedly also led to significant losses of consumer funds, due to wash trading, pump-and-dump schemes, and other forms of market manipulation by insiders and others. Such coins may, in addition, be characterized by poor security standards, including rushed or incomplete code development and a lack of diligence regarding code-based vulnerabilities.”
• “The Department requires regulated entities engaged in virtual currency business activity to comply with all applicable laws and regulations, including, without limitation, the Department’s virtual currency regulation (23 NYCRR Part 200), and to follow all applicable guidance, including the Department’s guidance on Coin-Listing and on Market Manipulation. The Department will continue to closely monitor its regulated entities and, as appropriate, will take supervisory and enforcement action to ensure Virtual Currency Business Entities follow all applicable laws and regulations.”
• The consumer bulletin contains similar cautionary language directed at consumers interested in cryptocurrency.