Safemoon Execs Operated “Multi-Million Dollar” Fraud Scheme

By Mark Hunter

1 day agoThu Nov 02 2023 07:50:46


Reading Time: 3 minutes

  • The Department of Justice has charged three Safemoon executives, Braden Karony, Kyle Nagy, and Thomas Smith, with securities fraud, wire fraud, and money laundering
  • These executives are accused of diverting millions of dollars in “locked” SFM tokens for their personal benefit
  • Karony and Smith have been arrested, but Nagy remains at large.

Three Safemoon executives have been charged with fraud by the Department of Justice after allegedly spending millions of dollars of project money on maintaining a luxury lifestyle. Braden Karony, Kyle Nagy, and Thomas Smith were yesterday charged by the US Attorney’s Office Eastern District of New York with conspiracy to commit securities fraud, conspiracy to commit wire fraud, and money laundering conspiracy for their roles in defrauding investors in Safemoon. The state alleges that the trio fraudulently diverted and misappropriated millions of dollars’ worth of purportedly “locked” SFM tokens for their personal benefit. Karony was arrested in Provo, Utah, and Smith was arrested in Bethlehem, New Hampshire, but Nagy remains at large.

SafeMoon Took 10% in ‘Tax’

Safemoon was one of the big winners of the prior crypto cycle, gaining thousands of percent as one of the most popular ‘memecoins’. The SFM tokens were initially issued in March 2021 by SafeMoon, with the heart of the SFM system being its smart contract, which imposed a 10% tax on every transaction involving SFM tokens; if an SFM holder transferred 10 tokens to another user, the smart contract would automatically deduct 1 token as a tax, leaving the recipient with 9 tokens. This tax structure was a fundamental feature of SFM’s design and one that was lauded by its supporters.

The marketing materials that accompanied Safemoon suggested that the 10% tax served a dual purpose, with its proceeds being divided into two separate 5% tranches, each purporting to offer specific benefits to SFM holders. The first 5% tranche was intended to be “reflected” back to all SFM holders, distributed in proportion to their current holdings. This mechanism was supposed to increase the total quantity of SFM held by every investor, effectively rewarding them for their participation.

The remaining 5% tranche of tax proceeds was earmarked for designated SFM liquidity pools. In this model, the larger the SFM liquidity pool became, the more liquid the SFM market would be, theoretically contributing to price stability and ease of trading.

In the months following its debut in March 2021, SFM experienced remarkable growth, attracting over one million holders and achieving a market cap of over $8 billion

Execs Paid Themselves the Tax

The allegations from the Attorney General suggest that the three defendants engaged in a fraudulent scheme to deceive SFM investors by making misrepresentations about key aspects of the SFM offering, misleading investors about the operation of the smart contract. 

The defendants falsely claimed that the “locked” liquidity pools would automatically grow through the 10% tax applied to SFM transactions, a strategy they claimed was meant to reassure investors that they couldn’t be subjected to “rug pulls.” 

In reality, it is alleged that the defendants maintained control over the SFM liquidity pools at all times, enabling them to intentionally divert and misappropriate substantial sums of tokens for their personal gain. Furthermore, despite publicly denying that they held or traded SFM tokens, the defendants were purportedly engaged in active buying and selling of SFM for personal profit. Their trading activities generated millions of dollars in proceeds, even at the height of SFM’s market value.

Trio Hid Their Activities

To obscure their movement of the illicit funds, the defendants employed a variety of techniques, including the use of multiple private and un-hosted crypto wallet addresses, complex transaction routing, and pseudonymous centralized exchange accounts. These practices made it challenging to trace and link the fraudulent proceeds to them, especially for regular investors who had no reason to go digging.

The Attorney General alleges that the consequences of the trio’s fraudulent activities extended beyond the digital realm, reportedly using some of the misappropriated funds to purchase high-end vehicles and real estate in various locations, including New Hampshire, Utah, and Florida. For instance, Smith, using cryptocurrency addresses under his control, transferred 2,900 BNB, equivalent to approximately $860,000, traceable to the SFM liquidity pool, to a third party’s cryptocurrency address. This significant transfer was made to facilitate the acquisition of a custom Porsche 911 sports car and an NFT. There’s no accounting for taste.

Custodial Sentences Await

The allegations paint a picture of a complex and illicit operation involving significant sums of money, luxury acquisitions, and intricate methods to conceal the actions of three individuals who abused their power over their community.

Custodial sentences await the three individuals should they be found guilty or if they arrange a plea deal. The SFM token has dropped 58% on the news, and we can expect that it will thankfully now die the death that was always inevitable from its unfortunate birth.