Reddit moderators removed on suspicions of insider trading during Community Points shutdown

Moderators of Reddit’s largest crypto forum were dismissed over allegations of selling off the subreddit’s native MOON token minutes before Reddit axed its crypto rewards program.

As a part of Reddit’s blockchain-based community points program, MOON tokens could previously be distributed, traded, or spent. However, Reddit admins informed moderators of the program cancellation an hour before its public announcement, leading to accusations that three moderators dumped their holdings within that hour.

While Reddit attributed the decision to end the program to scalability issues and an uncertain regulatory environment, the actions of the moderators have raised questions among users. Reddit user giddyup281 quickly asked the mods after the decision, “how many admins sold before the news?” User 2LostFlamingos wrote:

“You let everyone build up positions, list them on kraken, add liquidity using their own outside funds. And then you just lit it all on fire.”

Many users have adopted the familiar term “rug pull” to describe Reddit’s actions. Others, however, have gone further, accusing the social media site of insider trading. The subsequent backlash has raised concerns about the integrity of the platform’s governance, with some Reddit users calling for securities fraud charges. One such comment came from user Bucksaway03, who posted:

“The trust is gone, even if you got the contract, the trust is gone… those who sold before the announcement should be reported to the SEC. Removing ones self isn’t an acceptable outcome for insider trading.”

MOON is not registered as a security. Nevertheless, the SEC could still bring enforcement actions against the moderators, according to Andy Balthazor, a litigation and dispute resolution attorney at Holland & Knight specializing in digital assets. He further explained:

“The DOJ prosecutes these actions as criminal wire fraud, which does not require proving the underlying digital assets are securities. There are several recent examples of this. The DOJ has also brought wire fraud charges in other crypto contexts, like rug pulls or ICO frauds.”

Community Points cancelled

According to Reddit, the Community Points initiative was initially created to bolster communities and their contributors. However, the program reportedly ran into issues relating to scalability and regulatory concerns.

Tokens such as MOONs and BRICKs, which branched out from Reddit’s Community Points tools, gained some traction in 2023 as meme tokens. MOONs are tied to the /r/Cryptocurrency subreddit, whereas BRICKs are linked with the /r/FortniteBR. Their popularity surged particularly after their listing on Kraken in August.

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