The United States (US) Department of Justice (DOJ) has taken significant action against SafeMoon’s executive team, along with parallel action by the Securities and Exchange Commission (SEC), in response to allegations of a substantial fraud perpetuated against the project’s investors.
SafeMoon CEO John Karony and Chief Technology Officer Thomas Smith have been arrested, while creator Kyle Nagy remains at large, according to the DOJ.
Central to the allegations is the withdrawal of more than $200 million from the project, as outlined in the SEC’s complaint, with the funds reportedly diverted for personal purposes.
Authorities claim that these misappropriated funds were utilised for the acquisition of luxury vehicles, extravagant travel, opulent residences, and other personal assets by the implicated individuals.
Breon Peace, US Attorney for the Eastern District of New York, said in a statement:
“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.”
The three individuals, Kyle (known as “Safemoon Dev”), John (“CPT_HODL_T_MUN”), and Thomas (“papa”), are facing charges of conspiracy to commit securities fraud, conspiracy to commit wire fraud, and money laundering conspiracy.
The DOJ cited specific instances of misconduct, such as Thomas’ alleged diversion of tokens to purchase a Porsche 911.
Simultaneously, the SEC has brought charges against them for securities violations, accusing all three of “perpetrating a massive fraudulent scheme through the unregistered sale of the crypto asset security.”
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.”
SafeMoon (SFM), a meme coin launched in 2021 during the previous bull market’s peak, had initially promised investors that staked funds would be “locked” within a liquidity pool.
However, the SEC’s investigation revealed that “large portions of the liquidity pool were never locked,” and that these resources were directed toward real estate, travel, and luxury vehicles.
At one point in April 2021, Thomas publicly stated that he did not hold SFM personally, explaining that he aimed to separate his financial interests from his role as a CTO to avoid conflicts of interest.
Nevertheless, the SEC alleges that the SafeMoon team improperly used locked assets to make significant SFM purchases to manipulate the token’s price and influence the market.
Despite previous claims by the executives that they did not personally hold SFM, they are accused of trading the tokens for their personal benefit.
This trading activity purportedly generated substantial profits, which were obscured through private, unhosted wallets and pseudonymous exchange accounts, according to the DOJ’s indictment.