The SEC asserts that Karony and Smith inappropriately utilized funds to acquire SAFEMOON tokens with the intention of bolstering their price.
The US Department of Justice (DOJ) has taken legal action against the executive team of SafeMoon, accusing them of orchestrating significant fraud against the project’s investors. This case has also drawn attention from the Securities and Exchange Commission (SEC), which initiated actions on the same day. Also, the SEC is looking at the securities sales of the SAFEMOON token.
On Wednesday, November 1, the DOJ has arrested SafeMoon CEO John Karony and Chief Technology Officer Thomas Smith. According to allegations outlined in the SEC’s complaint, the SafeMoon executive team faces charges of withdrawing over $200 million from the project and misusing investor funds for personal purposes. Speaking on the development, Breon Peace, U.S. Attorney for the Eastern District of New York 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.”
Kyle Nagy, who is recognized as “Safemoon Dev” and is 35 years old, John Karony, also known as “CPT_HODL_T_MUN” at 27, and Thomas Smith, referred to as “papa” and aged 35, are facing charges related to conspiracy to commit securities fraud, conspiracy to commit wire fraud, and money laundering conspiracy. As an illustrative instance, the DOJ alleged that Smith redirected tokens to acquire a Porsche 911 for himself.
SAFEMOON, often characterized as a “TikTok meme coin”, witnessed an extraordinary 55,000% surge in worth from March 12 to April 20, 2021, propelling its market capitalization beyond $5 billion. However, its value declined significantly after vulnerabilities were identified in the underlying smart contract’s code. The Justice Department alleged that the market cap reached $8 billion during this period.
SEC Charges SafeMoon of Violating Securities Laws
Amidst the criminal charges they are confronting, the defendants also found themselves under scrutiny for securities violations by the SEC. The SEC asserts that Karony and Smith inappropriately utilized funds to acquire SAFEMOON tokens with the intention of bolstering their price. Additionally, Karony faces allegations of engaging in wash trading.
David Hirsch, Chief of the SEC Enforcement Division’s Crypto Assets and Cyber Unit (CACU) said:
“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”.
The agency has also leveled accusations against all three individuals. The SEC cited their involvement in an extensive fraudulent scheme through the unregistered sale of the crypto asset security.