Securities Fraud Case Against Safemoon Creators
The Department of Justice (DOJ) is determined to move forward with a securities fraud case against the creators of Safemoon, a cryptocurrency that has gained attention for its controversies. This decision comes even after a recent DOJ memo encouraged federal prosecutors to steer clear of cases that hinge on classifying crypto assets as either securities or commodities.
DOJ’s Communication and Internal Review
In a communication to a federal judge in Brooklyn, the DOJ outlined its findings from an internal review concerning the implications of its updated stance on cryptocurrency enforcement for the Safemoon case. The agency has expressed its willingness to take the case to trial on all charges.
Shift in DOJ Approach
Back in early April of this year, the DOJ disbanded its specialized team focused on cryptocurrency enforcement, signaling a significant shift in how it handles crypto-related crimes. Notably, one area it aimed to avoid included cases that would necessitate legal arguments about the securities nature of digital assets.
Despite this shift, in the latter part of 2023, federal authorities arrested the founders of Safemoon, accusing them of multiple crimes, including securities fraud, wire fraud, and money laundering.
Allegations Against Safemoon Founders
The indictment asserted that the defendants misled investors about their cryptocurrency’s liquidity by claiming it was locked, when in fact, they allegedly redirected millions of dollars worth of that liquidity for personal gains.
Judicial Proceedings
Recently, U.S. District Judge Eric Komitee, who is overseeing the proceedings, dismissed the defendants’ request to throw out the case based on their assertion that SFM should not be classified as a security. Judge Komitee deemed their objection premature, stating it was not within his remit to adjudicate on the security classification and that such determinations should be left to the jury during the trial.
“The Court should not resolve that fundamentally factual dispute before the parties can develop the record at trial.”
Although the DOJ has indicated that it will continue to address fraud in the cryptocurrency space under its new regulations, the Safemoon case will still require prosecutors to substantiate that SFM qualifies as a security, particularly as an investment contract.
Impact on Safemoon
In the aftermath of the founders’ arrest, Safemoon has since filed for bankruptcy. Once soaring with a market capitalization exceeding $1 billion in early 2022, the value of SFM has dramatically plummeted to just over $13 million at the time of this report.
