Cryptocurrency Firm SafeMoon Files for Bankruptcy Following $200M Fraud Lawsuit
On Thursday, December 14, 2023, crypto firm SafeMoon US LLC filed for bankruptcy in a Utah court, one month after facing a securities fraud lawsuit from U.S. regulators.
In its Chapter 7 bankruptcy petition, SafeMoon estimated its assets at between $10 million to $50 million and liabilities of up to $500,000, listing 99 estimated creditors. A Chapter 7 bankruptcy involves liquidating a company’s assets and shutting down operations.
The bankruptcy filing comes as SafeMoon and its executives faced civil charges in November from the U.S. Securities and Exchange Commission and criminal allegations from the Department of Justice. Regulators accused the three SafeMoon founders of defrauding investors out of more than $200 million through an alleged scheme involving unregistered securities sales.
Specifically, the SEC complaint alleged that SafeMoon executives Kyle Nagy, John Karony and Thomas Smith raised billions from investor funds beginning in March 2021 by claiming proceeds would be stored safely in a liquidity pool. However, regulators say large portions were never locked as promised and millions were improperly used by Nagy for personal expenses like luxury cars and property.
At its peak in April 2021, SafeMoon reached a $5.7 billion total market value as its price skyrocketed over 55,000% due to promises made to investors. But its value later dropped nearly 50% after the truth about the liquidity pool was revealed. The SEC also accused Karony and Smith of illegally manipulating the price higher through wash trading in the aftermath.
Since the regulatory action and market activity, SafeMoon’s native cryptocurrency, which trades under the ticker SFM, has dropped nearly 99% from its all-time high in January 2022. The bankruptcy filing indicates the project is now shutting down permanently after being accused of defrauding billions from investors through an alleged multi-million dollar cryptocurrency scam. It remains to be seen what assets will be recovered through the Chapter 7 liquidation process.
