SafeMoon Executives Charged in U.S. with Crypto Fraud Related to Crypto Token

Cryptocurrency, despite its popularity and widespread use, remains a controversial topic. It does not quite fit in with either conventional descriptions of financial commodities or securities. Straddling both, it has proved tricky for governments to regulate fully. The many loopholes in the governance and operations of several crypto-based platforms have led to crypto fraud allegations by users. The latest victims in this long line of illicit activity and costly lawsuits are the executives of the popular crypto token SafeMoon.

What Is SafeMoon?

SafeMoon is a cryptocurrency altcoin that launched in March 2021 and gained the attention of investors after a strong bull run just a month later. Since its peak, it has lost much of its value and is currently priced at $0.00006. The platform was built to reward long-term token holders. Token sellers are charged a 10% fee, with a part of that redistributed to existing token holders. A third-party audit of SafeMoon by CertiK discovered that the project owners created from the liquidity pool. This act gave them control over the SafeMoon tokens created as part of the fee. The discovery was flagged as a major security issue. 

Related: How Coinbase Anticipates IRS Impact on the Crypto Industry

Crypto and Fraud: An Unwanted Blemish

Cryptocurrency has a lot of benefits. It’s not only a means of secure payments but also an alternative to traditional finance. Instead of going to banks to access financial instruments like loans, decentralised platforms are a safe alternative. Blockchain technology is designed to be permissionless, not requiring the participation of a regulatory third party like a Central Bank. Still, this isn’t to say that it’s been smooth sailing for crypto investors. There have been high-profile cases of crypto fraud, with investors losing tokens across exchange platforms and software wallets. 

Read More: Tougher Crypto Regime Sparks Boom for Compliance Advisers

The Case of FTX

Arguably, the most high-profile case of crypto fraud in recent times is the alleged fraud case involving FTX and Alameda Research, a trading firm founded by Bank-Friedman. The relationship between both organisations had remained unclear, but Bank-Friedman insisted that Alameda was a completely independent organisation focused on market-making and arbitrage.

However, reports soon showed that Alameda’s business and FTX’s were deeply entwined and that the value of Alameda’s holdings was vulnerable to a sell-off. Consequent to a market scramble involving Binance and with concerns rising about FTX’s financial status, users began to withdraw their funds from FTX.

However, FTX couldn’t meet the demands and soon declared bankruptcy. Its CEO, Bank-Friedman, is presently undergoing trial for orchestrating fraud. As can be seen, despite how secure blockchain technology is, a lack of sufficient regulation means that there’s still a significant element of risk.

SafeMoon Comes Under Fire

SafeMoon is the latest company to be embroiled in crypto fraud controversy. Recently, the organisation’s Chief Technology Officer and CEO were arrested by the U.S. Department of Justice. The Securities and Exchange Commission charged them with crypto fraud after investigations revealed withdrawals of over $200 million to fund the purchase of luxury cars and homes. The alleged perpetrators of the crypto fraud had informed investors that these funds were locked.

A Lengthy Legal Battle Looms

Brecon Peace, the U.S. Attorney for the Eastern District of New York, stated that “As alleged, the defendants deliberately misled investors and diverted millions of dollars to fuel their greedy scheme and enrich themselves by purchasing a custom Porsche sports car, other luxury vehicles and real estate”. In addition to these criminal charges, the Securities Exchange Commission is charging the founders of SafeMoon for securities violations. 

While facing criminal charges, the defendants were also charged with securities violations. David Hirsch, the Chief of the SEC Enforcement Division’s Crypto Assets and Cyber Unit (CACU), stated that “Unregistered offerings lack the disclosures and accountability that the law demands, and they attract scammers like Kyle Nagy, who use these vulnerabilities to enrich themselves at the expense of others”.

Is There Any Safemoon Defence?

The SafeMoon team also allegedly used locked assets to purchase the token in a bid to increase its price and manipulate the market. In light of the crypto fraud allegations, SafeMoon’s executives continue to deny that they held the token. However, there is evidence to the contrary that they generated millions in profit from insider trading. They also hid their proceeds through pseudonymous exchange accounts unhosted and private wallets. So far, the company has yet to make any official statement denying the charges. 

Will Crypto Fraud Continue Unabated?

For as long as cryptocurrencies continue to be valuable assets, there will continue to be founders and developers looking to capitalise and rake in profits illegally. The onus is on regulatory bodies to discourage crypto fraud by developing the right policies to protect the interests and funds of investors.