In March 2021, the SafeMoon token was created by investors and cryptocurrency developers, including SafeMoon’s Utah-based CEO, John Karony. Shortly thereafter, SafeMoon tokens were heavily promoted by celebrities like Jake Paul, a professional boxer; singer Nick Carter; and rapper Soulja Boy, promising investors riches.
By May 2022, SafeMoon became the subject of three class action lawsuits (one in Utah and two in California) alleging SafeMoon executives and promoters sold millions of dollars worth of SafeMoon tokens and siphoned other cryptocurrencies from the project for their personal gain.
The case numbers are 2:22-cv-01108 and 2:22-cv-01527 for the California cases and 2:22-cv-00332 for the Utah case. California firm Scott+Scott stipulated to transfer the California cases to Utah, and the cases are being consolidated into one single action in the federal district court in Utah, where SafeMoon is headquartered. Scott+Scott has been appointed as lead counsel for the plaintiffs.
John Jasnoch is a partner at Scott+Scott and a lawyer for the California class action complaints. He is also lead counsel for the plaintiffs. Jasnoch told Utah Business that the case alleges a fraudulent scheme among the defendants to misleadingly promote and sell SafeMoon tokens.
According to the class action complaint for case number 2:22-cv-01108, “This case arises from a scheme among various individuals in the cryptocurrency sector to misleadingly promote and sell the digital asset associated with SafeMoon (the SAFEMOON Tokens) to unsuspecting investors. The Company’s executives, collaborating with several celebrity promoters, (a), made false or misleading statements to investors about SafeMoon through social media advertisements and other promotional activities, and (b) disguised their control over SafeMoon and a significant percent of the SAFEMOON Tokens that were available for public trading during the Class Period (the ‘Float’).”
Section 3 of the complaint continues, “In furtherance of this scheme, Defendants touted the technological innovation of the Company’s token and related cryptocurrency wallet, as well as the ability for investors to make significant returns due to the favorable ‘tokeneconomics’ of the SAFEMOON Tokens. In truth, Defendants marketed the SAFEMOON Tokens to investors so that they could sell their portion of the Float for a profit.”
Section 4 of the complaint reads, “Defendants’ strategy was a success. The misleading promotions and celebrity endorsements were able to artificially increase the interest in and price of the SAFEMOON Tokens during the Class Period, causing investors to purchase these losing investments at inflated prices. Meanwhile, the Company’s executives, Karony and Haines-Davies, conspired with the Promoter Defendants to sell their SAFEMOON Tokens to investors for a profit.”
In an email, Jasnoch says executives with the SafeMoon corporate entities collaborated with celebrity promoters to make false and misleading statements about SafeMoon through social media advertisements. “SafeMoon executives disguised their control over SafeMoon and a significant percentage of the SafeMoon tokens that were available for public trading,” he says. “Defendants touted the purported technological innovation of the SafeMoon tokens and related cryptocurrency wallet, as well as the ability for investors to make significant returns due to the favorable ‘tokenomics’ of the SafeMoon tokens. The misleading promotions artificially increased the interest in and price of the SafeMoon tokens, causing investors to purchase the tokens at highly-inflated prices.”
After the SafeMoon token price and trading volume spiked following the celebrity promotions, defendants began a “slow rug pull” on investors, Jasnoch explains. The defendants deceived investors by encouraging them to purchase the token with promises of future success while at the same time slowly selling off their own holdings as the trading volume from retail investors remained inflated.
Jasnoch says the plaintiffs allege the SafeMoon tokens are unregistered securities and that the defendants committed securities fraud with their false and misleading statements. Plaintiffs are seeking rescission on their purchases and damages, approximating the difference between the purchase price of the tokens and their current value.
One key concern in the SafeMoon lawsuit is the issue of digital assets and how they are regulated by the US Securities and Exchange Commission (SEC) through the US Supreme Court and the “Howey Test,” a test that determines whether or not a digital asset is a security.