SafeMoon: Founders and Executives of Digital-Asset Company Charged in Multi-Million Dollar International Fraud Scheme

Source: U.S. Attorney's Office, Eastern District of New York

Founders and Executives of Digital-Asset Company Charged in Multi-Million Dollar International Fraud Scheme

Wednesday, November 1, 2023
For Immediate Release
U.S. Attorney's Office, Eastern District of New York

Defendants Allegedly Misappropriated Millions of Dollars of Investors’ Funds for Their Own Use, Including the Purchase of Luxury Vehicles, Real Estate, and Personal Investments

An indictment was unsealed today in federal court in Brooklyn charging Braden John Karony, Kyle Nagy, and Thomas Smith with conspiracy to commit securities fraud, conspiracy to commit wire fraud and money laundering conspiracy for their roles in defrauding investors in a decentralized finance digital asset called “SafeMoon” (SFM) that was issued by their company SafeMoon LLC. As alleged, the defendants lied to SFM investors concerning whether SFM’s use of ‘locked’ liquidity was inaccessible to the defendants, as well as their personal holding and trading of SFM. As SFM’s market capitalization grew to more than $8 billion, the defendants fraudulently diverted and misappropriated millions of dollars’ worth of purportedly “locked” SFM liquidity for their personal benefit. Earlier today, Karony was arrested in Provo, Utah, and Smith was arrested in Bethlehem, New Hampshire. Nagy remains at large.

Breon Peace, United States Attorney for the Eastern District of New York; James Smith, Assistant Director-in-Charge, Federal Bureau of Investigation, New York Field Office (FBI); Ivan J. Arvelo, Special Agent-in-Charge, Homeland Security Investigations, New York (HSI); and Thomas M. Fattorusso, Special Agent-in-Charge, Internal Revenue Service Criminal Investigation, New York Field Office (IRS-CI), announced the arrests and charges.

“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,” stated United States Attorney Peace. “As fraudsters increasingly use digital assets to mislead investors and misappropriate funds, our Office will be at the forefront of pursuing them and their ill-gotten gains. We will continue our focus in the digital asset space and bring those who defraud investors in this area to justice.”

Mr. Peace expressed his appreciation to the U.S. Securities and Exchange Commission for its assistance with the case.

“As alleged, SafeMoon’s executives grew their company value to over $8 billion, but instead of rewarding their clients as promised, their insatiable greed led them to spend millions of dollars on their own lavish desires. Today, no luxury vehicles or sprawling real estate can protect them from the consequences of such crimes,” said Ivan J. Arvelo, Special Agent in Charge of Homeland Security Investigations, New York. “HSI New York will relentlessly pursue individuals who seek to exploit investors and the American financial system for their own gain.”

“Although this fraud scheme may be complex, the end result is simple—theft. Investors were assured their money would be safe while the defendants allegedly misled investors and diverted millions of dollars to line their pockets and their driveways. Through cryptocurrency tracing and good old-fashioned police work, IRS-CI New York’s Cyber and J5 groups worked with our investigative partners to track the millions in diverted funds and arrest the perpetrators of this con,” stated IRS-CI Special Agent-in-Charge Fattorusso.

Background on SFM

As alleged, SFM tokens were digital assets first issued in March 2021 by SafeMoon LLC on a public blockchain. Through the operation of SFM’s smart contracts, every transaction in SFM was automatically subject to a 10% tax, meaning, for example, that if a holder of SFM transferred 10 SFM to another user, 1 SFM would automatically be retained from the transfer as a tax, and the remaining 9 SFM would be received by the other party. As marketed to SFM investors, the proceeds of SFM’s 10% tax were split into two 5% tranches, the proceeds of which were supposed to benefit holders of SFM in specific ways. The first 5% tranche of the tax proceeds would be “reflected” back to, and distributed among, all SFM holders, in proportion to their current SFM holdings and thereby increase the total quantity of SFM held by every SFM investor automatically. The remaining 5% tranche of SFM tax proceeds would be deposited into designated SFM liquidity pools. The larger the SFM liquidity pool, the greater the liquidity in the market for SFM. In the months after its launch in March 2021, SFM grew to have more than one million holders and a market capitalization of more than $8 billion.

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Read more: https://www.justice.gov/usao-edny/pr/founders-and-executives-digital-asset-company-charged-multi-million-dollar