Original author: Loopy
Original source: Odaily Odaily
Recently, the news that DeFi protocol SafeMoon was sued by US regulators has become a hot topic in the crypto community.
On November 1, the U.S. SEC filed a lawsuit in the District Court for the Eastern District of New York, accusing the encryption company SafeMoon LLC and its founders Kyle Nagy, SafeMoon US LLC, company CEO John Karony, and Chief Technology Officer Thomas Smith of using unregistered crypto assets. SafeMoon conducted a massive fraudulent scheme and the charges include securities fraud, wire fraud and money laundering conspiracy. The U.S. Attorney's Office for the Eastern District of New York announced that John Karony and Thomas Smith have been arrested.
The price of SafeMoon token SFM soared by more than 55,000% between March and April 2021, and was once dubbed the "bull market myth"; however, as various negative news came out, its token price plummeted.
Coingecko data shows that after yesterday’s SEC prosecution, the price of SafeMoon tokens fell by more than 50% again, and there has still been no significant rebound, as shown below:
What does SafeMoon do?
Why is SafeMoon suspected of fraud? The criminal complaint filed by the SEC reveals why it violated the law.
The indictment states that the defendants and their company, SafeMoon US LLC, incorrectly explained to investors "what it means to lock in liquidity" and then used investors' money to purchase Porsche 911s, real estate and other valuable items.
SafeMoon emphasizes in its promotion that it cannot create a "rug-pull" scam because it "locks in" its own liquidity. However, this is actually a lie. The project team has always maintained control over the liquidity pool.
Additionally, the team claimed that they did not provide any SafeMoon tokens for their own personal use, but that Karony and Smith personally discussed trading strategies to achieve huge profits. Karony once suggested to Smith that the tokens in the team's wallet be sold; but Smith warned that they need to be more careful with their funds, and he also said that he was tired of reporting bank deposits to the IRS. "If we don't file our taxes carefully and regularly, we will be subject to numerous IRS audits."
When their SafeMoon tokens were successfully converted into another cryptocurrency (i.e. the token dump was successful), they celebrated, "IT'S FUCKING GO TIME!"
Additionally, SafeMoon’s plans also involve a cryptocurrency exchange, which agreed to help distribute rewards to SafeMoon holders. Karony once received $8 million in stablecoins from the exchange, which were supposed to be deposited into the liquidity pool. Instead, he transferred $1.5 million to the exchange and then withdrew $1.4 million in fiat to his personal bank account.
The SEC stated that the defendants admitted to manipulating prices and withdrawing more than $200 million worth of crypto assets from the project and misappropriating investor funds for personal use.
The SEC believes that SafeMoon violated the provisions of the Securities Act of 1933 and 1934. "Unregistered products lack the disclosure and liability requirements required by law, and they attract scammers like Kyle Nagy who exploit these vulnerabilities to earn fees from others for themselves," said SEC Enforcement Officer David Hirsch.
What is SafeMoon?
Many crypto newcomers may not be familiar with the SafeMoon project. Looking back at the bull market in 2021, it once set a myth of growth.
SafeMoon was listed on BSC on March 8. The price soared by more than 55,000% from March 12 to April 20, 2021, with a market value of US$5.7 billion. It once replaced "Dogecoin" as the The most searched cryptocurrency on search engines. Since then, when it was revealed that SafeMoon’s liquidity pool was not locked as claimed, its token price plummeted by nearly 50%.
The uniqueness of SafeMoon lies in its dividend mechanism, which also led to the popularity of the Safemoon model. At one time, hundreds of imitation disks appeared on the market.
To put it simply, SafeMoon has a unique reward and punishment mechanism: the contract will punish those who make transactions and reward those who hold coins; it extracts transaction taxes and automatically adds them to liquidity; users can "sit back and wait" for taxes to be collected by holding coins, and users do not need to do anything. Operation, only the currency balance can be increased.
Security concerns have long been exposed
In March 2023, SafeMoon had a security incident and lost $8.9 million due to a smart contract vulnerability. Since the attacker could not be traced, the crypto community had speculated that the vulnerability was a secret door deliberately left by the founding team.
In February 2022, many celebrities were also sued for their involvement in promoting SafeMoon, including musicians Nick Carter, Soulja Boy, Lil Yachty, and YouTube bloggers Jake Paul and Ben Phillips .
According to the lawsuit, SafeMoon and its subsidiaries imitated a real-life Ponzi scheme and misled investors into purchasing SafeMoon tokens on the pretext of unrealistic profits; the celebrities involved in the case successfully hyped the token by convincing their fans to invest in it. Tokens are artificially pulled.
(The above content is excerpted and reprinted with the authorization of partner MarsBit , original text link | Source: Odaily Odaily )
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