Not so SafeMoon? CEO and CTO of crypto fund arrested for fraud
- SafeMoon CEO Johnny Karony and CTO Thomas Smith have been arrested.
- The executive team at SafeMoon withdrew more than $200m from the project.
- Along with creator Kyle Nagy, who is still at large, the three execs face charges from both the DOJ and SEC.
Crypto and fraud have become so linked that the industry may never recover its image. In fact, the notion of crypto fraud now barely raises an analyst’s eyebrow.
In the same week that Sam Bankman-Fried was found guilty on all charges of fraud and money laundering over the FTX crypto-exchange bankruptcy, three top executives at another crypto firm have been accused of fraud and securities violations.
SafeMoon CEO John Karony and chief technology fficer Thomas Smith were arrested, and creator Kyle Nagy remains at large, according to the Department of Justice (DOJ).
The indictment was unsealed last week in Brooklyn, and charges all three executives with three criminal counts apiece.
Crypto fraud, conspiracy, money laundering…
Nagy, known as “Safemoon Dev,” 35; Karony, “CPT_HODL_T_MUN,” 27; and Smith, known as “papa,” 35, were all charged with conspiracy to commit securities fraud, conspiracy to commit wire fraud and money laundering conspiracy.
An example given by the DOJ says Smith diverted crypto tokens to buy himself a Porsche 911.
“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,” said Breon Peace, US Attorney for the Eastern District of New York.
As well as facing criminal charges, the defendants were charged for securities violations by the Securities and Exchange Committee (SEC).
“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).
The agency also accused all three of “perpetrating a massive fraudulent scheme through the unregistered sale of the crypto asset security.”
SafeMoon was a meme coin that rolled out in March 2021 at the height of the previous bull market. Arguably, the very idea of a “meme coin” is just 21st century-speak for “fool’s gold,” but at one point, the crypto token valued at $8 billion, so equally arguably not.
The team promised investors that staked funds would be “locked” in a liquidity pool. According to court papers, SafeMoon also promised investors that the token’s features would “drive the price to stratospheric all-time highs” and “Safely to the Moon.”
According to the SEC, “large portions of the liquidity pool were never locked” and executives used funds to buy homes, travel and high-end cars. Investors say they suffered significant losses after learning the pool wasn’t locked.
In April 2021 Smith assured investors that he personally held no SFM (SafeMoon’s namesake crypto token) because he was a software engineer. He’s quoted saying as much in the indictment, and that “I don’t want to create a situation where my decisions as a CTO are affected by the monetary gain of those actions, and that’s why I’ve made that separation for myself.”
All three executives of SafeMoon denied personally holding any SFM, but repeatedly traded the tokens for their own benefit, generating millions in profits while masking proceeds through private, unhosted wallets and pseudonymous exchange accounts.
BRO WE DID IT
The team also allegedly used locked assets to make large purchases of SFM to prop up its price and manipulate the market.
The indictment quotes Smith as telling an unnamed co-conspirator as they discussed buying luxury vehicles following Smith’s sale of tokens traceable to the liquidity pool, “BRO WE DID IT.”
After the charges were announced, SafeMoon lost over half of its value.
SEC chair Gary Gensler said speculative excesses in cryptocurrency undermine investor trust in US capital markets. The agent in charge of Homeland Security Investigations in New York, Ivan Argelo, said that the actions of the group showed “insatiable greed.”
That’s the crux of it, really: Karoney, Smith and Nagy diverted tens of millions of investors dollars to buy luxuries and line their own pockets. At least Bankman-Fried, misguided as his actions were, was arguably trying to do good with the money he stole.
More crypto, more fraud, no honor among crypto-bros…
6 December 2023
6 December 2023