Mar. 3—A New Hampshire man and former executive of the defunct crypto firm Safemoon — who in September asked the federal court to dismiss his criminal charges in an international crypto-currency scheme that prosecutors said defrauded investors out of millions of dollars — is now pleading guilty.
Thomas “Papa” Smith, 36, of Bethlehem, pleaded guilty on Feb. 20 in U.S. District Court of Eastern New York to conspiracy to commit securities fraud and conspiracy to commit wire fraud.
Smith formerly served as the chief technology officer at SafeMoon LLC, a company that focused on creating digital assets — crypto currency and non-fungible tokens (NFTs) — through a public blockchain, defined as a transparent and secure way of recording transactions on a digital ledger.
According to a news release from the U.S. Attorney’s Office for the Eastern District of New York, SFM tokens were digital assets first issued in March 2021 by SafeMoon on a public blockchain. Through the operation of SFM’s smart contracts, every transaction in SFM was automatically subject to a 10% tax, meaning, for example, if a holder of SFM transferred 10 SFM to another user, 1 SFM would automatically be retained from the transfer as a tax, and the remaining nine SFM would be received by the other party.
As marketed to SFM investors, the proceeds of SFM’s 10% tax were split into two 5% tranches (or pieces), the proceeds of which were supposed to benefit holders of SFM in specific ways.
The first 5% tranche of the tax proceeds would be “reflected” back to, and distributed among, all SFM holders, in proportion to their current SFM holdings, increasing the total quantity of SFM held by every SFM investor automatically.
The remaining 5% tranche of SFM tax proceeds would be deposited into designated SFM liquidity pools. The larger the SFM liquidity pool, the greater the liquidity in the market for SFM.
In the months after its launch in March 2021, SFM grew to have more than one million holders and a market capitalization of more than $8 billion.
Prosecutors claim Smith and others at Safemoon misrepresented to investors various material aspects of the SFM offering, including that SFM relied on “locked” liquidity pools that would automatically increase in size due to a 10% tax imposed on every SFM transaction; that the “locked” SFM liquidity pool prevented the defendants and other insiders at SafeMoon from being able to “rug pull” — a type of crypto fraud — SFM investors by removing liquidity from the SFM liquidity pool; that tokens in the liquidity pool would not be used to enrich the SafeMoon developers, including the defendants; that the defendants would manually add token pairs to the SFM liquidity pool when transactions of SFM occurred on specific centralized exchanges; and that the developers were not holding and trading SFM for their own benefit.
In reality, Smith and others allegedly retained access to the SFM liquidity pools and used that access to intentionally divert and misappropriate millions of dollars’ worth of tokens from the SFM liquidity pools for their personal benefit.
In addition, “although they publicly denied that they personally held or traded SFM, the defendants repeatedly bought and sold SFM for their personal benefit, including at the height of SFM’s market price, which generated millions of dollars in profits,” federal prosecutors claim.
“The defendants masked their movement of the fraudulent proceeds via numerous private un-hosted crypto wallet addresses, complex transaction routing, and pseudonymous centralized exchange accounts,” prosecutors said in a statement.
“The defendants used some of these proceeds to purchase luxury vehicles and real estate in New Hampshire, Utah, and Florida. Smith, for example, using cryptocurrency addresses he controlled, sent 2,900 Binance Coin worth more than approximately $860,000 and traceable to the SFM liquidity pool to a third party’s cryptocurrency address in order to purchase a custom Porsche 911 sportscar and non-fungible token.”
Smith’s sentencing date has yet to be scheduled.
