SEC Alleges SafeMoon Cryptocurrency Creators Engaged in Widespread Fraudulent Scheme, Stealing Millions from Investors

News | November 3, 2023 By:

On November 1, 2023, the Securities and Exchange Commission took action against the creators of the cryptocurrency SafeMoon, charging them with defrauding investors out of more than $200 million through an alleged widespread fraudulent scheme.

According to the SEC complaint, filed in the U.S. District Court for the Eastern District of New York, SafeMoon founder Kyle Nagy, and other company executives raised billions from unregistered token sales beginning in March 2021. Nagy and co-defendants John Karony, SafeMoon’s CEO, Thomas Smith, its CTO, and their associated companies promised investors that funds would be safely stored in a liquidity pool to provide stability to the fledgling cryptocurrency’s price.

However, the SEC alleges that contrary to these claims, large portions of the liquidity pool were never actually locked and inaccessible. Millions of dollars raised from investors through unregistered sales were instead misappropriated by Nagy and others for McClaren cars, extravagant travel, luxury homes, and other things.

At its peak in mid-April 2021, as the price of SafeMoon skyrocketed over 55,000% on its promises, the token reached an astronomical $5.7 billion total market valuation. But then its value plunged nearly 50% when the truth about the unsecured liquidity pool was revealed to the public.

In the aftermath of this decline, the SEC alleges that Karony and Smith improperly used millions taken from the misappropriated project funds to artificially inflate SafeMoon’s price through illegal wash trading. This practice aims to create a false sense of genuine market activity and demand in order to mislead other investors.

Over the lifetime of the scheme, billions were allegedly wiped out from the total market capitalization value through these issuances and subsequent crashes. If proven, the SEC argues these actions violated securities registration requirements and anti-fraud protections.

The charges mark the ongoing efforts by the SEC’s Crypto Assets and Cyber Unit to curb the harm from scams that proliferate in the cryptocurrency space by promising outsized returns while often delivering major investment losses instead. SEC officials have warned investors to exercise great caution, as fraudsters exploit the enthusiasm for digital currencies to drain funds.

“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.

A copy of the original filing can be found here.