SafeMoon Goes Bankrupt After SEC and DoJ Crackdown on Crypto Fraud
SafeMoon, a decentralized finance (DeFi) protocol and cryptocurrency that once claimed to take investors “safely to the moon”, has crashed and burned after filing for Chapter 7 bankruptcy on Thursday. The move comes after the U.S. Securities and Exchange Commission (SEC) and the Department of Justice (DoJ) accused the company and its executive team of fraud, unregistered offering of securities, and money laundering.
SEC and DoJ Charge SafeMoon Executives with Fraud
According to the SEC’s complaint, filed in the U.S. District Court for the Eastern District of New York, SafeMoon and its three executives – Kyle Nagy, John Karony, and Thomas Smith – promised to deliver astronomical profits to investors, but instead of delivering profits, they wiped out billions in market capitalization, withdrew crypto assets worth more than $200 million from the project, and misappropriated investor funds for personal use.
The SEC alleged that SafeMoon lied to investors about the security and accessibility of its liquidity pool, a collection of investor funds that provides liquidity to facilitate trading in the asset. The agency said that large portions of the liquidity pool were never locked, and the executives used them for their personal motives. The SEC also alleged that SafeMoon engaged in market manipulation by buying and selling its own tokens to create the impression of market activity, a practice known as wash trading.
The DoJ also announced that Karony and Smith were arrested last month, while Nagy was charged but has not been arrested yet. Also, the executives face charges of securities fraud conspiracy, wire fraud conspiracy, and money laundering conspiracy. The DoJ said that the executives defrauded investors of more than $1.8 billion through their scheme.
SafeMoon Files for Chapter 7 Bankruptcy
In the wake of the SEC and DoJ actions, SafeMoon filed for Chapter 7 bankruptcy protection on Thursday, to the United States Bankruptcy Court in the District of Utah. The document was inscribed by chief restructuring administrator Kenneth Ehrler.
Source: Safemoon bankruptcy filing – gov.uscourts.utb
The filing indicates that the firm, SafeMoon US LLC, has evaluated assets in the range of $10 million to $50 million and assessed liabilities of $100,001 to $500,000. The filing also lists between 50 and 99 creditors, including investors, exchanges, and service providers.
Chapter 7 bankruptcy, also known as liquidation bankruptcy, means that the firm’s assets will be sold to repay its creditors. Unlike Chapter 11 bankruptcy, which allows for restructuring and relaunching of the company, Chapter 7 bankruptcy signifies the end of the company.
SafeMoon’s Token Price Plummets by 42%
As a result of the bankruptcy filing and the legal troubles, SafeMoon’s token price (SFM) plummeted by 42% in the last 24 hours, according to CoinMarketCap. The token, which reached its all-time high market cap of $17 billion in April 2021, has since dropped 98.7% in value to $223 million. The token also suffers from low liquidity and high volatility, making it risky for investors.
SafeMoon, which was launched in March 2021, was one of the most hyped crypto projects of the year, attracting millions of investors with its catchy slogan and celebrity endorsements. However, the project also faced criticism and controversy for its lack of utility, transparency, and governance. The project’s downfall serves as a cautionary tale for investors in the crypto space, as fraudsters exploit the popularity of crypto assets to lure unsuspecting victims.
