SafeMoon Files for Chapter 7 Bankruptcy Amid Fraud Allegations and Executive Arrests

SafeMoon, a decentralized finance (DeFi) protocol, has taken a significant step by filing for Chapter 7 bankruptcy protection amidst mounting fraud allegations from U.S. securities regulators.

The bankruptcy petition was lodged with the United States Bankruptcy Court in the District of Utah on December 14. This type of bankruptcy, also known as “liquidation bankruptcy,” was filed voluntarily by attorney Mark Rose, with Chief Judge Joel T. Marker appointed to supervise the case.

A letter believed to be from SafeMoon’s chief restructuring officer, which surfaced on Reddit, disclosed the company’s struggles to fulfill its payroll obligations prior to the bankruptcy declaration. As a result, employees were advised to submit claims for their unpaid wages in the bankruptcy court.

This development comes just a month after the U.S. Securities and Exchange Commission (SEC) charged SafeMoon and key personnel – founder Kyle Nagy, CEO John Karony, and CTO Thomas Smith – with securities law violations in what it described as a “massive fraudulent scheme.”

The SEC’s allegations include the trio’s involvement in market manipulation to boost SafeMoon’s market cap to $5.7 billion, deploying deceptive marketing techniques, and making false statements about the token’s liquidity.

Arrests of SafeMoon Executives

Both Karony and Smith were arrested last month, while Nagy is still at large. The SEC’s complaint outlined that the executives, instead of fulfilling their promise of taking SafeMoon “Safe to the moon,” are alleged to have siphoned off $200 million from the project for personal expenditures, including luxury cars and real estate investments.

SFM Token Experiences Drastic Decline

Following the bankruptcy announcement, SafeMoon’s token (SFM) experienced a dramatic 54% decline in value. As of now, the token is trading at $0.00002941, significantly down from its January 5, 2022, peak of $0.0030. This decline has led to its market capitalization plummeting from $1 billion to a mere $17.18 million.

Discontent Among SafeMoon Community

The bankruptcy news has triggered significant discontent among the SafeMoon community. Reddit discussions reveal a sense of betrayal among supporters, with one user claiming, “Everyone has been scammed by the SafeMoon developers.”

Reflecting on the events, Santiago Melgarejo, a former nonfungible token analyst and sales specialist at SafeMoon, observed warning signs, especially when several employees were laid off after a month of unpaid work.