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SafeMoon Crashes Out, Creators Charged With Fraud — A Tale of Bad Crypto Investment

Last Updated November 2, 2023 5:31 PM
James Morales
Last Updated November 2, 2023 5:31 PM

Key Takeaways

  • Safemoon’s founders have been arrested and charged with fraud.
  • The token attracted significant attention in 2021, thanks to the endorsement of celebrities and influencers.
  • But with the quintessential “shitcoin” now worth next to nothing, investors are furious with the celebrity promoters.

Following its launch in 2021, SafeMoon’s meteoric rise and subsequent crash delivered what could be crypto’s biggest-ever pump-and-dump, demonstrating the risk to investors posed by celebrity hype and hot air. 

On Wednesday, November 1, the arrest of SafeMoon’s creators on fraud and money laundering charges likely marked the final nail in the coffin for a token that was once promoted by the likes of Soulja Boy and Lil Yachty.

How Celebrity Endorsement Fueled SFM Pump

The first SafeMoon token, known as SFM V1, hit the market in early 2021. Thanks to a campaign of celebrity endorsement that saw rappers and social media influencers promote the token to their followers, SafeMoon soon went viral.

In the first half of 2021, SafeMoon’s price recorded a series of dramatic peaks, most notably climbing over 23,000% between March 14 and April 21. But by the end of the year, its price had collapsed to a fraction of previous highs.

Of course, volatile assets that have no real use except for making early investors rich have long been a feature of crypto markets. In each instance, a small number of winners profit at the expense of a larger group of losers who either joined the game too late or failed to exit their positions in time.

But in the history of speculative “shitcoin” investing, SafeMoon stands out for its propensity to attract inexperienced investors, many of whom were enticed by the shimmer of celebrity and its allusion to wealth.

In a class action lawsuit  brought against SafeMoon LLC and its CEO in May 2022, Jake Paul, Nick Carter, Soulja Boy, Lil Yachty, and the YouTuber Ben Phillips were all named as co-defendants. 

The complaint alleges that the defendants engaged in a “slow rug pull” on investors, consistently assuring them of the token’s imminent price increase, all while company executives and celebrity promoters were selling off their holdings.

SafeMoon Crashes as Founders Face Legal Challenges

While the various influencers that shilled SafeMoon to their fans will probably survive being sued relatively unscathed, for CEO Braden John Karony and his fellow founders, a rising mountain of litigation looks much more problematic as they are increasingly branded as crypto criminals.

On top of multiple civil lawsuits, on Wednesday, November 1, the Justice Department unsealed a criminal indictment  charging Karony with wire fraud, securities fraud, and money laundering. The charges also implicated Kyle Nagy and Thomas Smith.

“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,” stated United States Attorney Breon Peace.

At the time of indictment publication, Karony and Smith had both been arrested, while Nagy remained at large.

In a parallel civil case, the US Securities and Exchange Commission (SEC) has brought its lawsuit  against the three men, alleging they misappropriated more than $200M of investors’ funds.

With its founders facing felony charges and its former celebrity endorsers having long since abandoned ship, on Thursday, November 2, 2023, SafeMoon collapsed to a new low of less than $0.00006. Between the latest arrests, lawsuits, and a $9M exploit that drained a significant portion of the tokens already struggling liquidity, SafeMoon could now be on its way to the grave.

For a token that once traded above $0.01, SafeMoon’s dramatic fall from grace presents a stark warning to investors who are forever chasing the next crypto moonshot: don’t play with rockets if you’re not prepared to get burned.