- The Department of Justice has the CEO and CTO of SafeMoon in custody but is still looking for creator Kyle Nagy in its securities fraud case against the executives.
- The Securities and Exchange Commission is also pursuing a case that the company offered unregistered securities.
The U.S. Department of Justice (DOJ) has arrested and charged SafeMoon's executive team with perpetrating a massive fraud on its investors in a case also targeted Wednesday by the Securities and Exchange Commission (SEC).
SafeMoon CEO John Karony and Chief Technology Officer Thomas Smith were arrested, and creator Kyle Nagy remains at large, according to the DOJ. The SafeMoon executive team withdrew more than $200 million from the project, as detailed in the SEC’s complaint, and they misappropriated investors funds for personal use, authorities said.
"As alleged, the defendants deliberately misled investors and diverted millions of dollars to fuel their greedy scheme and enrich themselves by purchasing a custom Porsche sports car, other luxury vehicles and real estate,” said Breon Peace, U.S. Attorney for the Eastern District of New York, in a statement.
Nagy, known as "Safemoon Dev," 35; Karony, "CPT_HODL_T_MUN," 27; and Smith, known as "papa," 35, were charged with conspiracy to commit securities fraud, conspiracy to commit wire fraud and money laundering conspiracy. In one example, the DOJ said Smith diverted tokens to buy himself a Porsche 911.
The token SFM fell more than 30% on Wednesday.
CoinDesk's attempts to reach the three through the company website and through their social media accounts have been unsuccessful.
While facing criminal charges, the defendants were also charged for securities violations by the SEC.
"Unregistered offerings lack the disclosures and accountability that the law demands, and they attract scammers like Kyle Nagy, who use these vulnerabilities to enrich themselves at the expense of others,” said David Hirsch, Chief of the SEC Enforcement Division’s Crypto Assets and Cyber Unit (CACU). The agency also accused all three of "perpetrating a massive fraudulent scheme through the unregistered sale of the crypto asset security."
SafeMoon (SFM) was a meme coin that rolled out in 2021 during the height of the previous bull market. Its team promised users that staked funds would be "locked" in a liquidity pool, but the SEC said that "large portions of the liquidity pool were never locked" and that executives used funds to buy homes, travel and high-end cars.
At one point in April of 2021, Smith assured investors that he personally held no SFM "because I'm a software engineer," he's quoted as saying in the indictment in the U.S. District Court for the Eastern District of New York. "I don't want to create a situation where my decisions as a CTO are affected by the monetary gain of those actions, and that's why I've made that separation for myself."
The SafeMoon team also allegedly used locked assets to make large purchases of SafeMoon to prop up its price and manipulate the market, the SEC said.
Though the executives had denied they personally held SFM, they repeatedly traded the tokens for their own benefit, generating millions in profits while masking their proceeds through private, unhosted wallets and pseudonymous exchange accounts, according to the DOJ.
UPDATE (November 1, 2023, 17:59 UTC): Adds DOJ charges and arrests of executives.
UPDATE (November 1, 2023, 18:09 UTC): Updates with token moves.
UPDATE (November 1, 2023, 18:39 UTC): Adds details from indictment.
UPDATE (November 1, 2023, 18:59 UTC): Adds attempts to reach the defendants for comment.
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