The SEC and DOJ both filed charges against the controversial cryptocurrency project SafeMoon and related individuals on Nov. 1.

The U.S. Securities and Exchange Commission (SEC) alleged that the company and its members carried out a fraudulent scheme by selling the SafeMoon (SFM) cryptocurrency. The regulator also described SFM as a security asset in its claims today.

The SEC named two companies — SafeMoon LLC and SafeMoon US LLC — as well as founder Kyle Nagy, CEO John Karony, and CTO Thomas Smith in its complaint.

Nagy allegedly told users that their funds were safely locked if they were held in SafeMoon’s liquidity pool and could not be withdrawn by anyone. However, the SEC said that, in reality, “large portions” of the funds in this pool were unlocked.

The SEC said that SafeMoon and its individual members later withdrew more than $200 million of crypto from the project and “wiped out” billions of dollars of their cryptocurrency’s market cap. The defendants allegedly misappropriated investor funds for their own personal use and purchased McLaren sports car luxury vehicles, travel, property, and more.

The SEC also noted that SFM’s price “skyrocketed” by more than 55,000% in the weeks prior to April 20, 2021, but dropped by 50% as details of the unlocked pool funds became clear. After this, the SEC claims Karony and Smith used misappropriated assets to raise prices and manipulate the market, including through wash trading.

DOJ files parallel criminal charges

The U.S. Attorney’s Office for the Eastern District of New York — part of the Department of Justice (DOJ) — unsealed parallel criminal charges against the three executives.

The office alleged that Smith, Karony, and Nagy committed securities fraud, conspiracy to commit wire fraud, and money laundering conspiracy. It claimed that the three individuals lied about whether pool funds were locked and misappropriated millions of dollars.

However, the Attorney’s Office described the SFM token as considerably more valuable during the relevant period. Whereas the SEC said that SFM reached a market cap above $5.7 billion, the Attorney’s Office said that SFM reached a market cap above $8 billion. The office also described how Binance’s BNB token was used throughout the fraud.

IRS agent Thomas M. Fattorusso stated that despite the complex nature of the fraud case, “the end result is simple—theft.”

The Attorney’s Office added that Karony and Smith have both been arrested in the United States, while Nagy remains at large. All are innocent until proven guilty.

It does not appear that either case is related to a hack that occurred against SafeMoon in April 2023. Although that attack affected nearly $9 million of liquidity pool funds, the exploiter behind the incident returned most of the stolen funds.