Creators of the SafeMoon crypto-token are facing a third class action complaint alleging they defrauded investors by artificially inflating the price of the tokens through false statements about the digital asset’s financial safety.
SafeMoon LLC also illegally sold the tokens by failing to register them as securities with the US Securities and Exchange Commission, according to the complaint filed Tuesday in the US District Court for the District of Utah.
Token holders “lost hundreds of millions of dollars” after online commentators revealed that SafeMoon’s founders had falsely stated that the asset was more safe because transaction fees would be locked away into “liquidity pools” for four years.
In fact, the founders had the ability to draw funds from the liquidity pools, the complaint alleged, which undermined SafeMoon’s statements that liquidity pools support the “price floor of the token.”
The price of SafeMoon tokens dropped by more than 70% after the publication of a blog post last April revealing that the liquidity pools weren’t locked.
The SafeMoon tokens, which is derived from the phrase “Safe To The Moon,” were first sold in March 2021 and increased in price by over 21,000% within a month. SafeMoon first minted one quadrillion tokens, the complaint said.
The tokens are designed to artificially increase in value, the complaint said. Each token transaction came with a 10% tax designed to encourage “long-term holding” of the tokens. Half of that tax is transferred to liquidity pools and the other half is redistributed back to token holders.
Part of the redistribution goes to “burned” tokens that are automatically taken out of circulation with the intention of decreasing supply to increase price, the complaint alleged.
Investors also lost money when SafeMoon’s founders created a second version of the token in December 2021 and imposed a 100% tax on all transactions that use the original version of the token, the complaint alleged.
“SafeMoon did not take steps to ensure that investors who attempted to transact with” the original token wouldn’t lose their entire investment, the complaint said. It didn’t post any warnings other than an announcement on Twitter about the changes.
Celebrities such as Barstool Sports founder Dave Portnoy, boxer and entertainer Jake Paul, and rapper Lil Yatchy heavily promoted the tokens on social media after they were first sold. The complaint said that SafeMoon tokens have no real world utility, and unlike other crypto-assets, half of all tokens “are owned by SafeMoon itself.”
SafeMoon tokens also qualify as a security and its creators violated the Securities Act by failing to register with the SEC, the complaint said, citing the agency’s 2019 framework on digital assets and securities transactions.
Causes of Action: Sections 5 and 12(a)(1) of the Securities Act, Section 15 of the Securities Act, Section 10(b) and Rule 10b-5, Section 20(a) of the Exchange Act For Violation of Section 10(b) and Rule 10b-5.
Relief: Damages, pre- and post-judgment interest, attorneys’ fees and costs.
Response: SafeMoon didn’t immediately respond to a request for comment.
Attorneys: Hatch Law Group PC, Scott & Scott Attorneys at Law LLP, and Roche Freedman LLP represent the plaintiffs.
The case is Rackauckas v. SafeMoon US, D. Utah, No. 2:22-cv-00332, 5/17/22.