On Wednesday, the Securities and Exchange Commission (SEC) announced it had charged crypto exchange company SafeMoon and its executive team with fraud for the unregistered sale of crypto asset security.
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According to the SEC, the company, SafeMoon LLC; its creator, Kyle Nagy; its CEO, John Karony; and its CTO, Thomas Smith; promised investors it would take the price of crypto assets “to the moon,” but instead wiped out billions in market capitalization, withdrew more than $200 million in crypto assets 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).
The SEC said in its complaint that Nagy assured investors that the funds investors used to purchase SafeMoon Token were safely locked and could not be withdrawn by anyone, including the defendants. Marketing for the crypto tokens said they were held in a liquidity pool – a collection of funds that provides liquidity to facilitate trading in the asset. But, the SEC said, instead, large portions of the liquidity pool were never locked and the defendants used millions of the funds to purchase cars, extravagant travel, luxury homes and other items.
“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.
Between March 12 and April 20, 2021, SafeMoon rose in price by more than 55,000 percent, and reached a market capitalization exceeding $5.7 billion before its price fell nearly 50 percent when it became public its liquidity pool was not locked. When the price plunged, the SEC alleges, Karony and Smith misappropriated assets to make large purchases of SafeMoon to prop up its price and manipulate the market. The SEC also alleges that Karony used an account he opened on a trading platform to buy and sell SafeMoon to give the appearance of market activity.
The complaint, filed in the U.S. District Court for the Eastern District of New York, charges the defendant of 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.
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