SafeMoon LLC, its progenitor Kyle Nagy, SafeMoon US LLC, as well as their CEO, John Karony, and CTO, Thomas Smith, have been charged by the U.S. Securities and Exchange Commission (SEC) over perpetrating a massive fraudulent scheme through the unregistered sale of the crypto asset security, SafeMoon. Despite promises to profitably drive the token’s price “Safely to the moon,” the involved parties allegedly siphoned off more than $200 million from the venture, leading to a substantial loss in market capitalization.
Investor funds were also reportedly diverted for personal extravagances. David Hirsch, the head of the SEC Enforcement Division’s Crypto Assets and Cyber Unit (CACU), commented on the pitfalls of decentralized finance (DeFi). He highlighted the lack of transparency and accountability in unregistered offerings, which can become a breeding ground for scammers. Hirsch specifically called out Kyle Nagy for leveraging such weaknesses to benefit personally.
The SEC further alleges that, contrary to their promises, the defendants were able to withdraw funds from SafeMoon‘s liquidity pool. This pool, intended to bolster trading liquidity, was supposedly ‘locked,’ ensuring the safeguarding of investor assets. Yet, considerable portions were apparently never secured, enabling the defendants to indulge in luxury spending, ranging from high-end McClaren vehicles to plush residences.
The SEC’s documentation reveals a rollercoaster journey for SafeMoon. Between March 12 and April 20, 2021, the token surged an astounding 55,000%, achieving a staggering market cap of over $5.7 billion. However, this was short-lived. Revelations that its liquidity pool was not as secure as touted led to a near 50% drop in its value. Subsequently, Karony and Smith are accused of using misallocated assets for considerable SafeMoon purchases, a move seen as a bid to artificially buoy its market price. Allegedly, Karony was also involved in wash trading, a deceptive strategy aimed at feigning market activity.
The allegations, lodged in the Eastern District of New York’s U.S. District Court, assert violations of multiple provisions from both the Securities Act of 1933 and the Securities Exchange Act of 1934.
