In the following guest post, Sarah Abrams, Head of Claims Baleen Specialty, a division of Bowhead Specialty, takes a look at the D&O risks that can arise from crypto-adjacent firms’ use “liquidity pools,” in view of the D&O claims involving the bankrupt digital token firm, SafeMoon. My thanks to Sarah for allowing me to publish her article as a guest post on this site. Here is Sarah’s article.
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One of the critical features of many crypto-adjacent business models is the firms’ use of “liquidity pools” to facilitate transactions, among other things. These pools have certain distinctive characteristics and functions that may present the firms with operational and disclosure risks. The liquidity pool-related civil and criminal enforcement actions involving the digital token firm SafeMoon illustrate how these risks can translate into D&O claims, and the December 2025 adversary proceeding filed in the firm’s bankruptcy further highlights the kinds of claims that can emerge.
Background
In cryptocurrency-based and crypto-adjacent businesses, a liquidity pool is a pool of investor funds or digital assets used to facilitate trading, pricing, or transactions, functionally similar to a shared trading account or inventory facility that must remain adequately funded and controlled for the business to operate. For D&O purposes, liquidity pools can be thought of as centralized stored assets that management may describe as automated or restricted, but which, in practice, may remain subject to human control and governance failures.
Unlike traditional cash or inventory, liquidity pool assets are typically held on-chain, meaning they reside on a public blockchain ledger and are governed by software code rather than a bank or custodian. Although transactions involving the pool are publicly visible, control over the assets may still rest with company insiders or affiliated wallets, creating potential gaps between technical design, public disclosures, and actual governance.
Recent legislative proposals in the crypto space may further heighten these risks by imposing clearer custody, control, and disclosure expectations on on-chain assets. If adopted, these measures could make misstatements about liquidity pool access or safeguards more likely to be framed as management or oversight failures rather than technical issues.
As liquidity pools become central to many crypto business models, supporting tokenized assets, cross-chain tools, and ETFs, pool governance may increasingly begin to resemble traditional D&O exposure. The December 2025 fraud case involving the now bankrupt cryptocurrency and blockchain company SafeMoon underscores that liquidity pools can be a core financial infrastructure capable of giving rise to allegations of misrepresentation, breach of fiduciary duty, and related D&O claims.
SafeMoon
SafeMoon and its executives have generated a dense overlay of civil enforcement actions, criminal charges, and bankruptcy-related litigation, all centered on alleged misrepresentations regarding the operation and control of liquidity pools. In October 2023, federal prosecutors in the Eastern District of New York unsealed a criminal indictment charging SafeMoon’s former executives with conspiracy to commit securities fraud, wire fraud, and money laundering in connection with the launch, promotion, and operation of the SafeMoon token. According to the indictment, although SafeMoon publicly portrayed itself as a decentralized finance project featuring automated liquidity and “locked” pools designed to protect investors, company insiders allegedly retained centralized control over the assets supporting trading liquidity.
Parallel to the criminal case, in November 2023, the SEC filed a sweeping civil enforcement action alleging that SafeMoon and its principals conducted an unregistered securities offering and engaged in a massive fraud that generated tens of millions of dollars in illicit proceeds. The SEC complaint details how SafeMoon marketed a 10% transaction “tax,” half of which was purportedly redistributed to token holders and half deposited into a liquidity pool that was repeatedly described as “locked” and inaccessible. According to the SEC, those representations were materially false because insiders received liquidity-provider tokens that allowed them to withdraw assets from the pool at will, undermining claims of decentralization and immutability.
SafeMoon filed for Chapter 7 bankruptcy in December 2023, and, in December 2025 the adversary complaint was brought by the Chapter 7 trustee, against former SafeMoon executives, insiders, and affiliated entities. The trustee alleges widespread embezzlement, fraudulent transfers, and breaches of fiduciary duty, asserting that tens, if not hundreds, of millions of dollars were siphoned from liquidity pools through affiliated wallets and shell entities. The trustee’s complaint emphasizes that liquidity pools were not merely technical features of the protocol, but core corporate assets whose control and disposition were dictated by management decisions, thereby anchoring traditional fiduciary-duty claims to ostensibly “decentralized” infrastructure.
Across the criminal indictment, SEC complaint, and bankruptcy trustee action, a consistent theme emerged: SafeMoon executives made affirmative statements that liquidity pools were locked, autonomous, or beyond insider control; representations that were held up as governance assurances.
Discussion
Liquidity pool cases like the one involving SafeMoon illustrate a developing, but familiar, category of D&O risk rooted in governance and disclosure rather than technology alone. When liquidity pools sit at the center of a company’s business model, statements about how those pools operate can function much like traditional disclosures about cash controls, collateral, or restricted accounts. If those statements later prove inaccurate or incomplete, the exposure may extend beyond investor losses or regulatory penalties to include claims against executives for mismanagement, misrepresentation, or breach of fiduciary duty.
In addition, liquidity pools may also present operational and disclosure risks. Boards and executives overseeing crypto businesses may approve business models that rely on liquidity pools to support trading activity, stabilize token prices, or maintain investor confidence. In doing so, management may publicly describe those pools as “locked,” “automated,” or “outside insider control.” If, however, executives or affiliated entities retain the ability to access or influence pooled assets, as alleged in the SafeMoon case, plaintiffs and regulators may frame the issue as a failure of oversight and governance.
The SafeMoon matter also demonstrates how liquidity pool disputes can generate multi-front D&O underwriting exposure. The same underlying allegations regarding access to and control over liquidity pools formed the basis for criminal fraud charges, SEC enforcement actions, and bankruptcy trustee claims asserting fiduciary breaches and fraudulent transfers. This stacking of proceedings may increase the likelihood of significant defense-cost exposure, even where D&O coverage may be unavailable due to insolvency, criminal allegations, or conduct exclusions. While coverage defenses may ultimately apply, parallel proceedings can erode policy limits well before final resolution.
As crypto-adjacent companies, including fintech platforms, market makers, stablecoin sponsors, and tokenization initiatives, continue to incorporate liquidity pools into their products and operations, similar governance questions may arise. For D&O underwriters, the SafeMoon case highlights the importance of underwriting beyond high-level claims of “decentralization.” Practical questions may include who can access or withdraw pooled assets, how liquidity pool controls are disclosed, whether those controls are consistent with public statements, and how responsibility for oversight is divided among executives, developers, and affiliated entities.
The views expressed in this article are exclusively those of the author, and all of the content in this article has been created solely in the author’s individual capacity. This article is not affiliated with the author’s company, colleagues, or clients. The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any subject matter.