In a significant development, the Securities and Exchange Commission (SEC) has taken action against SafeMoon LLC, its founder Kyle Nagy, SafeMoon US LLC, and the company’s top executives, John Karony and Thomas Smith. The SEC has accused them of engaging in a massive fraudulent scheme involving the unregistered sale of SafeMoon, a crypto asset security. This article dives into the details of the SEC’s charges and the alleged wrongdoings by SafeMoon and its team.
Unregistered Offering of Crypto Securities
The SEC alleges that SafeMoon and its executives promised investors huge profits by taking the token “Safely to the moon.” However, instead of delivering on their promises, they wiped out billions in market capitalization, withdrew over $200 million in crypto assets from the project, and misappropriated investor funds for their personal use.
Lack of Transparency in Decentralized Finance
David Hirsch, Chief of the SEC Enforcement Division’s Crypto Assets and Cyber Unit (CACU), highlighted that unregistered offerings like SafeMoon lack the transparency and accountability required by the law. Fraudsters like Kyle Nagy take advantage of these vulnerabilities to enrich themselves at the expense of investors.
Misleading Claims and Misappropriation
Nagy assured investors that their funds were safely locked in the SafeMoon’s liquidity pool. It making them inaccessible to anyone, including the defendants. SEC’s complaint reveals that a significant portion of the liquidity pool was never locked. Millions of dollars were misappropriated for extravagant purchases. It including luxury cars, travel, and homes.
Investor Caution in the Crypto Space
Jorge G. Tenreiro, Deputy Chief of the CACU, urged investors to exercise extreme caution in the crypto space. He warned that fraudsters often use the popularity of crypto assets to make lofty promises but frequently deliver nothing more than a crash landing.
SafeMoon’s Rollercoaster Ride
The SEC’s complaint outlines that SafeMoon’s price skyrocketed by over 55,000% in just over a month, reaching a market capitalization exceeding $5.7 billion. However, on April 20, 2021, the price plunged by nearly 50%. And it was revealed that the liquidity pool was not as secure as claimed. Allegedly, Karony and Smith used misappropriated assets to manipulate the market and prop up SafeMoon’s price, with Karony engaging in wash trading.
Legal Action by the SEC
The SEC has filed a complaint in the U.S. District Court for the Eastern District of New York. It was charging the defendants with violations of the registration. Anti-fraud provisions of the Securities Act of 1933 and the anti-fraud provisions of the Securities Exchange Act of 1934.
This legal action highlights the SEC’s commitment to protecting investors and maintaining the integrity of the crypto market. SEC’s investigation was conducted with the assistance of several experts in crypto. It supervised by key figures in the SEC’s Enforcement Division.
The SEC acknowledges the cooperation of the U.S. Attorney’s Office for the Eastern District of New York and the FBI, which have filed a parallel criminal action. This joint effort demonstrates a strong stance against fraudulent activities in the crypto space.