The U.S. Department of Justice (DOJ) has arrested and charged SafeMoon’s CEO, John Karony, and Chief Technology Officer, Thomas Smith, accusing them of misappropriating over $200 million from the project to buy luxury cars and homes.
Meanwhile, the founder, Kyle Nagy, is still at large as the DOJ actively pursues a securities fraud case against the executives.
SEC Also Pursues Case for Unregistered Securities
In addition to the DOJ’s actions, the Securities and Exchange Commission (SEC) has initiated a case against SafeMoon, alleging that the company offered unregistered securities to investors.
The authorities claim that the defendants deliberately misled investors and diverted millions of dollars to finance their personal gains. The charges include conspiracy to commit securities fraud, conspiracy to commit wire fraud, and money laundering conspiracy. For instance, the DOJ stated that Thomas Smith used tokens to purchase a Porsche 911.
SafeMoon Token Plummets Amidst Allegations
Following these developments, the SafeMoon (SFM) token experienced a significant decline, plummeting by more than 30% on the day of the arrests and charges.
Defendants Facing Criminal and Securities Violation Charges
The defendants face criminal charges, including securities fraud, while the SEC has brought securities violation charges against them.
According to David Hirsch, Chief of the SEC Enforcement Division’s Crypto Assets and Cyber Unit, unregistered offerings lack the necessary disclosures and accountability, providing an opportunity for individuals like Kyle Nagy to exploit vulnerabilities for their personal enrichment.
SafeMoon, initially introduced as a meme coin in 2021, had promised its users that staked funds would be securely “locked” in a liquidity pool. However, the SEC alleges that a significant portion of the liquidity pool remained unlocked, and company executives used these funds for real estate, travel, and luxury cars.
The indictment highlights instances where the SafeMoon team used locked assets to make substantial purchases of SafeMoon tokens to artificially inflate the token’s price and manipulate the market.
Concealing Profits through Private Wallets
Despite their previous claims of not holding SFM tokens, the executives are accused of repeatedly trading these tokens for their personal gain. They generated substantial profits while obscuring their proceeds through private, unhosted wallets and pseudonymous exchange accounts.
The arrests and charges against SafeMoon’s executive team underscore the regulatory scrutiny and consequences faced by cryptocurrency projects for fraudulent practices and securities violations.