DOJ Proceeds With Safemoon Fraud Case Despite Policy Shift

The Department of Justice (DOJ) has declared its intention to move forward with the securities fraud case against the founders of the cryptocurrency Safemoon. This decision comes despite a recent policy shift that advises federal prosecutors to avoid cases that involve determining the securities status of crypto assets. In a letter to the Brooklyn federal judge overseeing the case, DOJ attorneys confirmed that an internal review had been conducted, leading to the conclusion that the Safemoon case should proceed to trial on all counts.

The new crypto policies issued by the DOJ earlier this month instructed attorneys to discontinue criminal crypto cases in several key areas. This includes cases that would require the department to litigate whether a digital asset is a security or a commodity. However, the DOJ maintains that proceeding with the Safemoon case aligns with current policy, as it involves allegations of securities fraud, wire fraud, and money laundering.

The founders of Safemoon were arrested in late 2023 and charged with these crimes. The indictment alleged that the founders deceived holders of their cryptocurrency, sfm, by claiming that its liquidity was locked. In reality, they had diverted and misappropriated millions of dollars' worth of purportedly 'locked' SFM liquidity for their personal benefit.

Judge Eric Komitee, who is overseeing the Safemoon case, denied the defendants' motion to dismiss the case on the grounds that SFM is not a security. Komitee ruled that this objection was premature and that it was not his role to weigh in on SFM's security status. He stated that SFM's status as a security should be left to the jury and that the court should not resolve that fundamentally factual dispute before the parties can develop the record at trial.

Ask Aime: How does the DOJ's decision to move forward with the Safemoon securities fraud case impact the cryptocurrency market?

The DOJ's decision to proceed with the Safemoon case, despite its new digital assets rules, indicates that it will continue to pursue fraud in the crypto sector. However, the charge of securities fraud in the Safemoon case may obligate federal prosecutors to prove at trial that SFM is a type of security known as an investment contract.

Weeks after the Safemoon founders' arrest, the company filed for bankruptcy. At its peak in early 2022, SFM briefly eclipsed a $1 billion market capitalization. At the time of writing, it is worth slightly more than $13 million. The DOJ's decision to proceed with the case, despite the policy shift, sends a clear message that it remains committed to holding those responsible for fraud in the crypto sector accountable, regardless of the challenges posed by the evolving regulatory landscape.