From bull market myths to jail time, what did SafeMoon do?

Original | Odaily

Author | Loopy

! [From bull market myths to jail time, what did SafeMoon do?] ](https://img-cdn.gateio.im/webp-social/moments-7f230462a9-c216ce91fb-dd1a6f-cd5cc0.webp)

Recently, the news that DeFi protocol SafeMoon has been sued by U.S. regulators has become a hot topic in the crypto community.

On November 1, the U.S. SEC filed a lawsuit in the U.S. District Court for the Eastern District of New York, alleging crypto firm SafeMoon LLC and its founders Kyle Nagy, SafeMoon US LLC, the company’s CEO John Karony, and CTO Thomas Smith of conducting a large-scale fraudulent scheme through unregistered crypto asset security SafeMoon, with charges including 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 now been arrested.

The SafeMoon token price soared by more than 55, 000% between March and April 2021, and was once dubbed the “bull market myth”; But with all kinds of negative news, the price of its token plummeted.

Coingecko data shows that the SafeMoon token price fell by more than 50% again after yesterday’s SEC lawsuit, and there is still no significant rebound yet, as shown below:

! [From bull market myths to jail time, what did SafeMoon do?] ](https://img-cdn.gateio.im/webp-social/moments-7f230462a9-1c039191d2-dd1a6f-cd5cc0.webp)

What did SafeMoon do?

Why is SafeMoon suspected of fraud? The criminal indictment filed by the SEC reveals to us why it violated the law.

According to the complaint, the defendants and their business, SafeMoon US LLC, misinterpreted “what it means to lock in liquidity” to investors, and then used investors’ money to buy Porsche 911s, real estate and other valuable items.

In its promotion, SafeMoon stresses that it cannot create a “Rug-pull” scam because it “locks” its own liquidity. However, this is actually a lie, and the project team has always maintained control over the liquidity pool. **

In addition, the team claims that they did not offer any of the SafeMoon tokens for their own personal use, but Karony and Smith personally discussed trading strategies to make huge profits. At one point, Karony 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 said he was tired of reporting bank deposits to the IRS. “If we don’t file our taxes carefully and regularly, the IRS will do a lot of audits on us.”

When their SafeMoon tokens were successfully converted to another cryptocurrency (i.e., the token sell-off was successful), they celebrated, “IT’S FUCKING GO TIME” (it’s time to withdraw!). ）

In addition, SafeMoon’s plan involves a cryptocurrency exchange that has 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 a liquidity pool. However, he transferred $1.5 million to the exchange and then withdrew $1.4 million in fiat currency to his personal bank account.

According to the SEC, the defendants pleaded guilty to price manipulation and the withdrawal of more than $200 million worth of crypto assets from the project to divert investor funds for personal use. **

The SEC found that SafeMoon violated the provisions of the Securities Laws 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 money from others for themselves.” SEC enforcement officer David Hirsch said.

What is SafeMoon?

Many crypto newcomers may not be familiar with the SafeMoon project, and when you think back to the bull market of 2021, it once set a myth of gains.

SafeMoon went live on BSC on March 8, and its price soared by more than 55, 000% between March 12 and April 20, 2021, reaching a market capitalization of $5.7 billion, and it once overtook “Dogecoin” as the most searched cryptocurrency on search engines. Since then, SafeMoon’s token price has plummeted by nearly 50% when its liquidity pool was not locked as claimed.

The uniqueness of SafeMoon lies in its dividend mechanism, which has also led to the popularity of the Safemoon model, and hundreds of imitation orders have appeared in the market for a while.

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; Extract transaction taxes and automatically add them to liquidity; Users can “sit and wait” for tax collection by holding coins, and users can increase their holdings without any operation and only need to hold the balance of the coins.

The security hazard has long been exposed

In March 2023, SafeMoon had a security incident and lost $8.9 million due to a smart contract vulnerability. Since the attackers could not be traced, the crypto community had speculated that the vulnerability was a deliberate secret door left by the founding team.

In February 2022, a number of celebrities were also sued for their involvement in promoting SafeMoon, including musicians Nick Carter, Soulja Boy, Lil Yachty, and YouTubers Jake Paul and Ben Phillips.

According to the lawsuit, SafeMoon and its subsidiaries mimicked a real-life Ponzi scheme to mislead investors into buying SafeMoon tokens under the pretext of unrealistic profits; The celebrities involved in the case persuaded their fans to invest in the token, successfully hyping the token, and artificially pulling the market.