SafeMoon seeks Chapter 7 bankruptcy amid arrests and SEC allegations

DeFi protocol SafeMoon has applied for Chapter 7 bankruptcy protection following allegations of fraud by the U.S. securities authority.

On Dec. 14, SafeMoon filed for Chapter 7 bankruptcy, commonly referred to as “liquidation bankruptcy,” with the United States Bankruptcy Court in the District of Utah. The petition, filed voluntarily by attorney Mark Rose, has Chief Judge Joel T. Marker overseeing the proceedings.

A document circulating on Reddit believed to be a letter from SafeMoon’s chief restructuring officer to its employees revealed the company’s inability to pay wages prior to the bankruptcy filing. This has led to the advice that employees file claims in bankruptcy court for their unpaid wages.

In November, only a month before this setback, the United States securities regulator accused SafeMoon and its key figures, founder Kyle Nagy, CEO John Karony, and CTO Thomas Smith, of securities law violations in an incident labeled as a “massive fraudulent scheme.”

The three utives stand accused of misusing their positions to artificially inflate SafeMoon’s market capitalization to $5.7 billion through wash trading, employing deceptive marketing tactics, and making misleading statements about liquidity lock-up timelines.

Karony and Smith were arrested last month, while Nagy remains at large.

The SEC highlighted in its complaint that while the SafeMoon utive team had promised to take the token “Safe to the moon,” they allegedly diverted $200 million from the project for personal use, including purchasing sports cars and real estate.

SFM token value dips 54% following bankruptcy

The impact of the bankruptcy filing was immediately felt in the value of the SafeMoon token (SFM), which saw a 54% drop. The token is currently valued at $0.00002941, a steep decline from its peak price of $0.0030 on Jan. 5, 2022. Consequently, its market cap has plummeted from $1 billion to $17.18 million.

SFM price chart | Source: CoinMarketCapThe bankruptcy news has also sparked a wave of frustration among former SafeMoon supporters.

Discussions on Reddit reveal allegations of being misled by the SafeMoon developers, with one user stating, “Everyone has been scammed by the SafeMoon developers.”

Reflecting on the situation, Santiago Melgarejo, who previously worked as a nonfungible token analyst and sales specialist at SafeMoon, pointed out that there were clear warning signs, especially evident when several employees were suddenly dismissed despite having worked for a month without pay.