Misappropriating locked funds, two executives of DeFi protocol SafeMoon arrested, founder still at large

The DeFi protocol SafeMoon is being sued by the Department of Justice, with allegations against top executives for embezzling locked funds through a code loophole, using them to purchase sports cars and luxury homes. The CEO and CTO have been arrested, and SafeMoon SFM has plummeted over 60% in a single day.

What is SafeMoon: Holding coins equals mining? With a market cap surpassing $5 billion in two months, analyzing the investment logic behind SafeMoon.

Embezzlement of Locked Funds: SafeMoon Faces Legal Action

According to a Department of Justice announcement, the SafeMoon team is facing multiple charges:

• Conspiracy to commit money laundering

• Conspiracy to commit wire fraud

• Conspiracy to commit securities fraud

The indictment states:

As the SafeMoon SFM market value rapidly grew to $8 billion, the defendants not only lied about the team's inability to access SFM's locked liquidity, retained access to the SFM liquidity pool, but also fraudulently transferred hundreds of millions of dollars of "locked" SFM for personal gain and dumped at market highs.

Buying Supercars and Mansions: Founder Kyle Nagy Still at Large

The announcement stated that SafeMoon CEO John Karony and CTO Thomas Smith have been arrested, while founder Kyle Nagy remains at large.

Prosecutor Peace stated:

The SafeMoon team intentionally misled investors, embezzling millions of dollars to purchase supercars and properties.

SafeMoon SFM Token Plummets

SafeMoon's official website and protocol are still operational. Due to SFM charging a 10% transaction fee on each trade and automatically redistributing 5% to holders, similar to "holding coins is mining," further incentivizing users to hold coins steadily without selling.

This has led to rapid growth in SFM holders and market value. In the months following its launch in March 2021, SFM had over 1 million holders and a market value exceeding $8 billion.

However, projects with Ponzi token economics like these are often unsustainable. SFM has been on a prolonged decline from its peak and plummeted over 60% in a single day after the Department of Justice filed charges.