Washington D.C., Nov. 1, 2023 —
The Securities and Exchange Commission today charged SafeMoon LLC, its creator Kyle Nagy, SafeMoon US LLC, and the companies’ Chief Executive Officer, John Karony, and Chief Technology Officer, Thomas Smith, for perpetrating a massive fraudulent scheme through the unregistered sale of the crypto asset security, SafeMoon. According to the SEC’s complaint, the Defendants promised to take the price of the token “Safely to the moon,” but instead of delivering profits, they wiped out billions in market capitalization, withdrew crypto assets worth more than $200 million from the project, and misappropriated investor funds for personal use.
“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).
According to the SEC’s complaint, in marketing the SafeMoon Token, Nagy assured investors that funds were safely locked and could not be withdrawn by anyone, including the Defendants, while held in SafeMoon’s liquidity pool, a collection of investor funds that provides liquidity to facilitate trading in the asset. However, as alleged, large portions of the liquidity pool were never locked, and the Defendants misappropriated millions of dollars to purchase McClaren cars, extravagant travel, luxury homes, and other things.
“We urge investors to continue to exercise extreme caution in this space, as fraudsters exploit the popularity of crypto assets to promise astronomical profits while all too frequently only delivering a crash landing,” said Jorge G. Tenreiro, Deputy Chief of the CACU.
The SEC’s complaint alleges that SafeMoon skyrocketed in price by more than 55,000 percent from March 12 to April 20, 2021, and reached a market capitalization exceeding $5.7 billion before its price plummeted by nearly 50 percent when the public learned, on April 20, 2021, that SafeMoon’s liquidity pool was not locked as claimed. After this plunge, Karony and Smith allegedly used misappropriated assets to make large purchases of SafeMoon to prop up its price and manipulate the market. Karony also allegedly used an account he opened on a trading platform to buy and sell SafeMoon to create the impression of market activity, a practice known as wash trading.
The SEC’s complaint, filed in the U.S. District Court for the Eastern District of New York, charges 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 conducted by John Lucas, with the assistance of John Crimmins, Pamela Sawhney, Sejal Bhakta, and John Marino. It was supervised by Deborah A. Tarasevich, Mr. Tenreiro, and Mr. Hirsch. The SEC’s litigation will be led by Dean M. Conway and Oren Gleich, under the supervision of James Connor.
The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of New York, which filed a parallel criminal action, and the FBI.
