SafeMoon Not So Safe, SEC, FBI Allege Brazen Fraud

• The SEC and FBI charge SafeMoon with criminal and securities violations.
• The federal agencies accuse key personnel of fraud and criminality.
• Misappropriated funds paid for exotic sports cars and luxury living. 

Cryptocurrency is often likened to the “Wild West” due to its lack of regulation, high volatility, and susceptibility to fraud and scams. Recently, US federal agencies have gone to great lengths to restore order by dishing out a slew of enforcement actions.  

The latest high-profile crypto crackdown has ensnared SafeMoon , with the Securities Exchange Commission (SEC) and Federal Bureau of Investigation (FBI) jointly charging key personnel within the company on accusations of selling unregistered securities and fraud.

SafeMoon Executives Charged

On November 1, the SEC charged SafeMoon creator Kyle Nagy, CEO John Karony, and CTO Thomas Smith over “perpetrating a massive fraudulent scheme through the unregistered sale of the crypto asset security”.

The SEC complaint alleged that the SafeMoon executives had promoted the SFM token with promises to safely take the price “to the moon.” The reality saw billions of dollars in market value evaporate as key personnel cashed out over $200 million, misappropriating investors’ funds for personal use. 

The SafeMoon team claimed that investor funds were locked securely in a liquidity pool. However, according to the securities regulator, large portions of the “locked funds” were never actually locked. This enabled the executives to use liquidity pool funds for personal expenses such as “McLaren cars, extravagant travel, luxury homes, and other things”.

The SEC also accused Karony and Smith of market manipulation through wash trading and using misappropriated funds to artificially prop up the token following steep price declines. The pair have been charged with violating federal securities laws related to unregistered token sales and fraudulent misrepresentations to investors.

Even before the SEC and FBI charges, a series of prior exposés had highlighted concerning practices within the company. This began in September 2021, following the resignation of SafeMoon’s previous CTO, Hank Wyatt .

Ongoing Concerns

Wyatt resigned from SafeMoon soon after the company had missed a much-hyped deadline for a native SafeMoon wallet. The former CTO gave few details of his departure, only that it was a difficult decision and that he looked forward to “the next chapter.” This only fueled speculation that trouble was brewing behind the scenes.

Since then, several controversies have sprung up, including allegations of influencers pumping and dumping the token, as well as the revelation that team members before and after Karony’s March 2021 CEO appointment had accessed funds from the supposed locked liquidity pool.

Despite the allegations, the project continued to operate normally, including roadmap updates such as the recent V3.50 SafeMoon Wallet update and Karony’s visit to the US Congress to discuss climate change and blockchain">blockchain technology in April.

On the Flipside

• Federal agencies have been slow to act as allegations against SafeMoon emerged over a year ago.
• Karony has consistently denied any wrongdoing, often calling accusers “fudders”.
• The SFM token fell 60% over the last 24 hours.

Why This Matters

The “War on Crypto” has earned US authorities a negative reputation among the crypto community. However, enforcement action against SafeMoon demonstrates that there is a commitment to policing the crypto “Wild West” and restoring investor trust. The issue lies in fine-tuning this approach so that legitimate crypto projects are not unjustly targeted by authorities.

Learn more about the recent SafeMoon smart contract exploit hack here:
SafeMoon Hacker ‘Accidentally’ Steals $8.9M. Wants to Return Everything

Find out what Mark Cuban thinks about the ailing NFT market here:
Mark Cuban Glosses Over NFT Price Plunge