The US Securities and Exchange Commission (SEC) has filed charges against SafeMoon, its Founder Kyle Nagy, SafeMoon US, and the company's top executives, John Karony and Thomas Smith. The regulator has revealed a fraudulent scheme related to the unregistered sale of SafeMoon tokens (SFM), a cryptocurrency that promises of substantial returns to investors.

The SEC is accusing the crypto project's executives of a fraudulent scheme that misled investors by assuring the safety of their funds while, in reality, large portions of the liquidity pool were never locked. This resulted in misappropriation of funds exceeding $200 million for personal use.

David Hirsch, the Chief of the SEC Enforcement Division's Crypto Assets and Cyber Unit, stated: “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.”

Wash Trading Allegations

SFM experienced an extraordinary price surge, soaring more than 55,000 percent between March 12 and April 20, 2021, as reported by the SEC. During this period, its market capitalization skyrocketed to an astonishing $5.7 billion. However, this meteoric rise was short-lived, as the truth about the unlocked liquidity pool surfaced in April 2021. This revelation triggered a sharp price decline of nearly 50%.

Following the price crash, Karony and Smith allegedly used misappropriated assets to prop up SFM's price and manipulate the market. Additionally, Karony is accused of engaging in wash trading, a practice that created a false impression of market activity.

Today we charged SafeMoon LLC, its creator Kyle Nagy, SafeMoon US LLC, and the companies’ CEO, John Karony, and Chief Technology Officer, Thomas Smith, for perpetrating a massive fraudulent scheme through the unregistered sale of the crypto asset security, SafeMoon.

— U.S. Securities and Exchange Commission (@SECGov) November 1, 2023

The SEC has filed its complaint in the US District Court for the Eastern District of New York, charging 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.

SafeMoon Executives Face Multiple Federal Charges

The founders and executives of SafeMoon are facing federal charges of conspiracy to commit securities fraud, wire fraud, and money laundering. Karony, Nagy, and Smith are accused of orchestrating a fraudulent scheme that misled the investors of SFM and misappropriated millions of dollars.

Karony and Smith have already been arrested. Karony was apprehended in Provo, Utah, and Smith in Bethlehem, New Hampshire. However, Nagy remains at large, with law enforcement actively seeking his apprehension. Separately, the US Department of Justice has filed lawsuits against the founders of SafeMoon in a federal court in Brooklyn.