In brief
- DOJ prosecutors are moving forward with the Safemoon case, despite the widely circulated "crypto memo" earlier this month.
- DOJ attorneys say proceeding to trial remains consistent with current policy.
- Safemoon founders are charged with securities fraud, wire fraud, and money laundering.
The Department of Justice told a federal judge it plans to proceed with a securities fraud case against the founders of cryptocurrency Safemoon, despite an agency memo circulated earlier this month instructing federal prosecutors to avoid pursuing cases that would involve determining the securities status of crypto assets.
In a letter sent Friday to the Brooklyn federal judge overseeing the case, DOJ attorneys said they had conducted an “internal review” of whether the department’s new crypto policies might implicate the Safemoon case, and concluded it should “proceed to trial on all counts.”
In early April, the DOJ shuttered its crypto-focused enforcement team and instructed its attorneys to wind down criminal crypto cases in several key areas. One such area: any cases that “would require the Justice Department to litigate whether a digital asset is a ‘security’ or a ‘commodity.’”
In late 2023, federal prosecutors arrested Safemoon’s founders and charged them with securities fraud, wire fraud, and money laundering. The indictment alleged that the founders told holders of their cryptocurrency, which trades as SFM, that the token’s liquidity was locked, when in reality the defendants "fraudulently diverted and misappropriated millions of dollars' worth of purportedly ‘locked’ SFM liquidity for their personal benefit."
DOJ Will Shutter Crypto Unit, Back Off Services Like Tornado Cash
In a massive shakeup for crypto regulation in the United States, the U.S. Department of Justice has disbanded its crypto-dedicated enforcement team and will no longer pursue criminal cases in several key crypto-related areas, according to an agency memo circulated Monday evening. The DOJ’s National Cryptocurrency Enforcement Team (NCET) has been disbanded effective immediately according to the memo, which was sent to agency staff last night by Deputy Attorney General Todd Blanche. Further, the...
On Friday, the judge overseeing the Safemoon case, Eric Komitee, also denied the defendants’ motion to dismiss the case on the grounds that SFM is not a security. Komitee ruled this objection was premature, and that it was not his role to weigh in on SFM’s security status.
“SFM’s status as a security (or not) should be left to the jury,” he wrote. “The Court should not resolve that fundamentally factual dispute before the parties can develop the record at trial.”
Crypto Bros Argue Trump Policy Shift Means $25M Fraud Case Should Be Tossed
Two brothers charged with stealing $25 million worth of Ethereum launched a novel legal defense in federal court this week: Their case must be dismissed immediately, so they say, because new DOJ crypto policies imply the property they’re accused of stealing can’t really be considered property in the first place. Last spring, the DOJ accused Anton and James Pepaire-Bueno, two MIT-educated coding whizzes, of exploiting the process by which the Ethereum network validates transactions to steal milli...
Though the DOJ has said that under its new digital assets rules it will continue to pursue fraud in the crypto sector, the charge of “securities fraud” in the Safemoon case—which it now is officially still pursuing—appears poised to obligate federal prosecutors to prove at trial that SFM is a type of security known as an investment contract.
Weeks after Safemoon’s founders were arrested, the company filed for bankruptcy. At its peak in early 2022, SFM briefly eclipsed a $1 billion market capitalization. At writing, it’s worth slightly more than $13 million.
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