From the myth of the bull market to imprisonment, what did SafeMoon do?
The Meme coin that once surged 500 times has completely died.Author: Loopy, Odaily Planet Daily
Recently, the news that the 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 Eastern District of New York, accusing the crypto company SafeMoon LLC and its founder Kyle Nagy, SafeMoon US LLC, CEO John Karony, and CTO Thomas Smith of conducting a large-scale fraudulent scheme through the unregistered crypto asset SafeMoon. The charges include securities fraud, telecommunications 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 already been arrested.
The price of SafeMoon tokens soared over 55,000% from March to April 2021, earning it the title of "bull market myth"; however, its token price plummeted amid various negative news.
Data from Coingecko shows that after the SEC lawsuit yesterday, the price of SafeMoon tokens fell again by over 50%, and there has been no significant rebound, as shown below:
What Did SafeMoon Do?
Why is SafeMoon suspected of fraud? The criminal indictment submitted by the SEC reveals the reasons for its illegal activities.
The indictment points out that the defendants and their company SafeMoon US LLC misled investors about what "locking liquidity means," and then used investors' money to purchase a Porsche 911, real estate, and other luxury items.
SafeMoon emphasized in its promotions that it could not create a "rug-pull" scam because it "locked" its liquidity. However, this was 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 personal use, but Karony and Smith personally discussed trading strategies to gain huge profits. Karony once suggested to Smith to sell the tokens in the team wallet; however, Smith warned that they needed to use the funds more cautiously, stating that he was tired of reporting bank deposits to the IRS. "If we are not careful and do not file taxes regularly, the IRS will audit us heavily."
When their SafeMoon tokens were successfully converted to another cryptocurrency (i.e., the token sale was successful), they celebrated, saying, "IT'S FUCKING GO TIME."
Moreover, SafeMoon's plans also involved a cryptocurrency exchange that agreed to help distribute rewards to SafeMoon holders. Karony received $8 million in stablecoins from the exchange, which were supposed to be deposited into the 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.
The SEC pointed out that the defendants admitted to manipulating prices and withdrew over $200 million worth of crypto assets from the project, 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 legally required disclosures and liabilities, and they attract scammers like Kyle Nagy, who exploit these loopholes to profit from others," said SEC enforcement official David Hirsch.
What is SafeMoon?
Many newcomers to crypto may not be familiar with the SafeMoon project, which once set a myth of price increase during the bull market in 2021.
SafeMoon launched on BSC on March 8, and its price soared over 55,000% from March 12 to April 20, 2021, reaching a market cap of $5.7 billion. It even briefly replaced Dogecoin as the most searched cryptocurrency on search engines. However, after it was revealed that the liquidity pool was not locked as claimed, its token price plummeted by nearly 50%.
SafeMoon's uniqueness lies in its dividend mechanism, which also led to the popularity of the SafeMoon model, resulting in hundreds of clones in the market.
In simple terms, SafeMoon has a unique reward and punishment mechanism: the contract punishes those who trade and rewards those who hold tokens; it collects transaction taxes and automatically adds them to liquidity; users can "sit back" and earn from taxes just by holding tokens, requiring no action other than maintaining their token balance.
Security Risks Have Long Been Exposed
In March 2023, SafeMoon experienced a security incident and lost $8.9 million due to a smart contract vulnerability. As the attacker could not be traced, the crypto community speculated that the vulnerability was intentionally left as a backdoor by the founding team.
In February 2022, many celebrities faced a collective lawsuit for 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 mimicked real-life Ponzi schemes, misleading investors into buying SafeMoon tokens under the guise of unrealistic profits; the aforementioned celebrities convinced their fans to invest in the token, successfully hyping it up artificially.
