by In a significant development, the founders and executives of SafeMoon, a decentralized finance digital asset, find themselves in legal trouble as an indictment was unsealed in federal court in Brooklyn.
Braden John Karony, Kyle Nagy, and Thomas Smith have been charged with conspiracy to commit securities fraud, wire fraud, and money laundering conspiracy. The charges stem from their alleged role in defrauding investors in SafeMoon, a digital asset issued by their company, SafeMoon LLC.
The Alleged Deception
The defendants are accused of intentionally deceiving SafeMoon investors by providing false information about the security of SFM’s liquidity.
They allegedly misled investors regarding whether the liquidity was truly “locked” and inaccessible to the defendants, and whether the defendants were holding and trading SFM for their gain.
As SFM’s market capitalization soared to over $8 billion, the defendants are said to have fraudulently diverted and misappropriated millions of dollars from the supposedly “locked” liquidity for their benefit.
Earlier today, authorities arrested Karony in Provo, Utah, and Smith in Bethlehem, New Hampshire, while Kyle Nagy remains at large.
US Attorney Vows to Protect Investors Amid Rising Digital Asset Frauds
United States Attorney Breon Peace for the Eastern District of New York emphasized the defendants’ alleged deception and the misappropriation of funds for personal gain. He stated that as digital assets gain popularity, fraudsters are increasingly exploiting the space 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.”
Breon Peace, US Attorney for the Eastern District of New York.
The investigation involved the collaboration of multiple law enforcement agencies, including the Federal Bureau of Investigation (FBI), Homeland Security Investigations (HSI), and the Internal Revenue Service Criminal Investigation (IRS-CI).
These agencies worked together to track the diverted funds and arrest the individuals responsible for the alleged fraudulent scheme.
Background on SafeMoon (SFM)
SafeMoon tokens were digital assets introduced in March 2021 on the Binance Smart Chain. The tokens utilize smart contracts to tackle the challenge of reducing volatility and ensuring liquidity within its ecosystem.
The process involves an automatic 10% transaction fee for every trade conducted on the SafeMoon network, triggering a series of four key functions:
- Reflections: SafeMoon allocates 4% of the transaction fees to existing token holders, providing them with additional tokens as a reward for their participation.
- Liquidity Pool Acquisition: A portion of the fees, specifically 3%, is allocated to augment SafeMoon’s liquidity pool. This addition serves to enhance the overall liquidity available for trading on the platform.
- Token Burn: SafeMoon dedicates 2% of the tokens to be burned, effectively reducing the circulating supply. This action is designed to help stabilize the value of the token and create scarcity.
- Growth Fund: A further 1% of the tokens is channeled into SafeMoon’s Ecosystem Growth Fund, supporting the ongoing development and expansion of the SafeMoon project.
The liquidity pool’s size was critical to the market’s liquidity. In the months following its launch, SFM gained over a million holders and a market capitalization of more than $8 billion.
