SEC Files Charges Against SafeMoon and Creators for Cryptocurrency Fraud
The U.S. Securities and Exchange Commission (SEC) has filed charges against SafeMoon LLC, its creator Kyle Nagy, SafeMoon US LLC, and the companies' CEO, John Karony, and CTO, Thomas Smith, for conducting a large-scale fraudulent scheme involving the unregistered sale of the crypto asset security, SafeMoon. Instead of fulfilling promises to take the token "Safely to the moon," the defendants allegedly caused substantial losses in market capitalization, withdrew over $200 million in crypto assets from the project, and misappropriated investor funds for personal gain.
"Decentralized finance claims to deliver transparency and predictable outcomes, but 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 complaint alleges that Nagy assured investors that their funds were securely locked in SafeMoon's liquidity pool, preventing any withdrawals, including by the defendants. However, it is claimed that a significant portion of the liquidity pool remained unlocked, and the defendants used misappropriated funds for luxury purchases, including sports cars and extravagant travel.
SafeMoon's price surged by over 55,000 percent from March 12 to April 20, 2021, reaching a market capitalization of $5.7 billion. However, the price dropped nearly 50 percent after it was revealed that the liquidity pool was not locked as previously stated. Karony and Smith are accused of manipulating the market by purchasing SafeMoon with misappropriated assets to artificially prop up its price.
The SEC's complaint charges the defendants with violating the registration and anti-fraud provisions of the Securities Act of 1933 and the anti-fraud provisions of the Securities Exchange Act of 1934.
The SEC's investigation was led by John Lucas, with the assistance of John Crimmins, Pamela Sawhney, Sejal Bhakta, and John Marino, under the supervision of Deborah A. Tarasevich, Jorge G. Tenreiro, and David Hirsch. The SEC's litigation will be led by Dean M. Conway and Oren Gleich, under the supervision of James Connor.
The SEC acknowledges the support of the U.S. Attorney's Office for the Eastern District of New York and the FBI, who have also initiated a parallel criminal action.