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Decentralized finance (DeFi) protocol SafeMoon has addressed the recent litigation by the United States Securities and Exchange Commission (SEC), expressing its intent to seek a resolution.
We are reviewing the recent news and we of course take these issues extremely seriously.
As we receive more information, we will do our best to address the situation as quickly as possible.
In the meantime our teams continue to build and we keep our focus on delivering for…
— SafeMoon (@safemoon) November 2, 2023
In an official statement posted on X (formerly Twitter), SafeMoon confirmed plans to review the SEC’s charge are in motion. The protocol also emphasized its ongoing commitment to prioritizing user satisfaction and advancing its vision and mission.
While SafeMoon’s dedication to its goals is commendable, the latest investigations from the SEC have substantial merit that could have a negative impact on the platform.
On November 1, the US regulator formally charged the DeFi project’s executives with fraud and for offering unregistered securities.
The individuals named in the charges include Chief Executive Officer (CEO) John Karony, Chief Technology Officer (CTO) Thomas Smith, and the project’s creator, Kyle Nagy.
Today we charged SafeMoon LLC, its creator Kyle Nagy, SafeMoon US LLC, and the companies’ CEO, John Karony, and Chief Technology Officer, Thomas Smith, for perpetrating a massive fraudulent scheme through the unregistered sale of the crypto asset security, SafeMoon.
— U.S. Securities and Exchange Commission (@SECGov) November 1, 2023
The US regulator stated that unregistered offerings lacked the disclosures and accountability the law demands.
SafeMoon (SFM) debuted in 2021 during the rise of a thriving cryptocurrency market. The project’s team made a commitment to users, assuring them that their staked funds would be securely locked in a liquidity pool (LP).
However, the SEC’s investigation revealed that large portions of the LP were never unlocked but, rather, withdrawn by executives to purchase homes and luxurious cars and fund exotic vacations.
SafeMoon Faces Further Legal Action Amidst Executive’s Arrest
Following the SEC’s litigation, the Department of Justice (DOJ) arrested John Karony and Thomas Smith, while Kyle Nagy remains at large.
NEWS: SafeMoon crypto executives arrested by DOJ, charged with fraud by SEC
— nft now (@nftnow) November 1, 2023
As revealed in the DOJ’s investigation, the executives withdrew over $200 million from the platform, a detail that aligns with the SEC’s filing.
Furthermore, they were found to have misappropriated investor funds for personal gain, similar to the ongoing trial of ex-FTX founder Sam Bankman-Fried and his colleagues.
Breon Peace, the US Attorney of the Eastern District of New York, stated that the defendants deliberately diverted millions of dollars to drive their deceptive scheme and enrich themselves.
They purchased custom-made Porsche sports cars, real estate, and other luxurious cars. However, the defendants denied holding SFM tokens.
The DOJ cited that they repeatedly traded tokens for profit, generated millions, and masked proceeds through private, unhosted wallets and pseudonymous exchange accounts.
Meanwhile, SafeMoon is not new to controversies. On March 28, the platform’s LP was exploited and drained of $8.9 billion worth of tokens.
#Safemoon was just hacked for $8.9M.
After two minutes looking at the newest Safemoon contract, I was able to identify the extremely obvious exploit.
The attacker took advantage of the public burn() function, this function let any user burn tokens from ANY other address (code… pic.twitter.com/bovlyVoq1i
— DeFi Mark (@MoonMark_) March 28, 2023
However, blockchain analysts attributed the attack to a publicly available token burb function in the contract, which allowed attackers to breach security and manipulate the system.