Two SafeMoon executives were arrested after prosecutors said they lied to investors about “locking in” liquidity when they instead used the money to buy luxury cars and real estate.
Braden John Karony, 27, and Thomas Smith, 35, were arrested Wednesday, while another director, Kyle Nagy, 35, remains at large, according to a statement from the U.S. Attorney’s Office for the Eastern District of New York.
Prosecutors say, in a joint enforcement action with the Securities and Exchange Commission, that the trio embezzled millions of dollars to purchase a custom Porsche sports car and real estate, among other things.
“As fraudsters increasingly use digital assets to deceive investors and embezzle funds, our firm will be at the forefront of prosecuting them and their ill-gotten gains. We will continue our focus on the digital asset space and bring to justice those who defraud investors in this area,” said U.S. Attorney for the Eastern District of New York Breon Peace.
SafeMoon issues decentralized financial digital assets called SafeMoon or SFM. SFM reached a market capitalization of more than $9 billion dollars and has counted more than two million SFM holders since its launch in March 2021, according to a lawsuit.
SafeMoon transactions were subject to a 10 percent tax, half of which was marketed as going to designated SFM liquidity pools that the defendants said would prevent them from being used to enrich developers, prosecutors said.
“In reality, Defendants allegedly maintained access to the SFM Liquidity Pools and used that access to intentionally divert and embezzle millions of dollars in tokens from the SFM Liquidity Pools for their personal benefit,” prosecutors said.
The three were charged with conspiracy to commit securities fraud, conspiracy to commit bank fraud and money laundering conspiracy.
SEC comes knocking
The Securities and Exchange Commission also filed charges Wednesday against Smith, Nagy and Karony for alleged fraud and offering unregistered securities.
The SEC called SafeMoon a “crypto asset security” and said the three executives failed to deliver on promised profits and misappropriated investor funds for their own personal use.
The SEC said SafeMoon tokens are securities because “purchasers invested money in a common venture and generated reasonably expected profits or returns from the entrepreneurial or managerial efforts of others, in this case, Defendants.”
“Decentralized finance claims to provide transparency and predictable results, but unregistered offerings lack the disclosures and accountability the law requires, and they attract scammers like Kyle Nagy, who use these vulnerabilities to enrich themselves at the expense of others,” says David Hirsch. head of the SEC Enforcement Division’s Crypto Assets and Cyber Unit, in a statement.
Notably, the SEC also referred to BNB as a “crypto asset security.” The agency previously said it was considering BNB as a security in a separate case against it Binance in June.
Updated at 2:05 PM ET with details