Eastern District of New York | Founders and executives of digital asset company indicted in multimillion-dollar international fraud scheme

Today in federal court in Brooklyn, an indictment against Braden John Karony, Kyle Nagy and Thomas Smith on charges of conspiracy to commit securities fraud, conspiracy to commit wire fraud and conspiracy to commit money laundering was dismissed for their roles in defrauding investors in a decentralized digital financial asset “SafeMoon” (SFM). , published by her company SafeMoon LLC. As alleged, Defendants lied to SFM investors about whether SFM’s use of the “locked” liquidity was inaccessible to Defendants and about their personal ownership and trading in SFM. As SFM’s market capitalization grew to more than $8 billion, defendants allegedly fraudulently diverted and misappropriated millions of dollars’ worth of “locked” SFM liquidity for their personal benefit. Karony was arrested today 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, Deputy 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 Division, New York Field Office (IRS-CI), announced the arrests and indictments.

“As alleged, the defendants intentionally misled investors and diverted millions of dollars to further their greedy scheme and enrich themselves through the purchase of a custom Porsche sports car, other luxury vehicles and real estate,” said U.S. Attorney Peace. “As fraudsters increasingly use digital assets to mislead investors and embezzle funds, our office will be at the forefront of pursuing these fraudsters and their ill-gotten gains. We will continue to focus on the digital assets space and bring to justice those who defraud investors in this space.”

Mr. Peace expressed his gratitude to the U.S. Securities and Exchange Commission for its assistance in this case.

“As alleged, SafeMoon executives increased the value of their company to over $8 billion, but instead of rewarding their customers as promised, their insatiable greed caused them to spend millions of dollars on their own lavish desires. Today, neither luxury vehicles nor expansive real estate can protect them from the consequences of such crimes,” said Ivan J. Arvelo, Special Agent in Charge of Homeland Security Investigations in New York. “HSI New York will relentlessly pursue individuals who seek to exploit investors and the American financial system for their own benefit.”

“While this fraud scheme may be complex, the end result is simple: theft. Investors were assured that their money was safe, while the defendants allegedly misled investors and diverted millions of dollars to line their pockets and driveways. Through cryptocurrency tracing and good old-fashioned police work, IRS-CI New York’s Cyber ​​and J5 groups have worked with our investigative partners to track down the millions in diverted funds and arrest the perpetrators of this fraud,” the IRS special agent explained -CI in New York. Recharge Fattorusso.

Background information on SFM

As claimed, SFM tokens were digital assets first issued on a public blockchain in March 2021 by SafeMoon LLC. Through the operation of SFM’s smart contracts, every transaction in SFM was automatically subject to a 10% tax, meaning that, for example, if an SFM holder transfers 10 SFM to another user, 1 SFM will automatically be withheld from the transfer as tax, and the remaining 9 SFM would be received by the other party. When marketing to SFM investors, the proceeds from SFM’s 10% tax were divided into two 5% tranches, the proceeds of which were intended to benefit SFM owners in a special way. The first tranche of 5% of the tax proceeds would be “mirrored” and distributed among all SFM holders in proportion to their current SFM holdings, automatically increasing the total amount of SFM held by each SFM investor. The remaining 5% tranche of SFM tax proceeds would be deposited into designated SFM liquidity pools. The larger the SFM liquidity pool, the higher the liquidity in the SFM market. In the months following its launch in March 2021, SFM grew to more than one million holders and a market cap of more than $8 billion.

Defendant’s fraudulent scheme

As alleged, defendants misrepresented to investors various material aspects of the SFM offering, including that SFM relied on “locked” liquidity pools, the size of which was automatically regulated due to a 10 percent tax levied on each SFM transaction increase; that the “locked” SFM liquidity pool prevented defendants and other SafeMoon insiders from enabling SFM investors to “rug pull” – a type of crypto fraud – by withdrawing liquidity from the SFM liquidity pool; that tokens in the liquidity pool would not be used to enrich the SafeMoon developers, including the defendants; that Defendants would manually add token pairs to the SFM liquidity pool when SFM transactions occurred on certain centralized exchanges; and that the developers did not consider and act on SFM to their advantage.

In reality, the defendants allegedly retained access to the SFM liquidity pools and used that access to intentionally divert and misuse millions of dollars worth of tokens from the SFM liquidity pools for their personal benefit. Furthermore, although Defendants publicly denied that they personally held or traded SFM, they repeatedly bought and sold SFM for their personal benefit, including at the level of SFM’s market price, thereby generating millions of dollars in profits. Defendants concealed their movement of fraudulent proceeds through numerous private, unhosted crypto wallet addresses, complex transaction routing, and pseudonymous centralized exchange accounts. The defendants used some of these proceeds to purchase luxury vehicles and real estate in New Hampshire, Utah and Florida. For example, Smith, using cryptocurrency addresses under his control, sent 2,900 Binance Coins (BNB) worth more than approximately $860,000 traceable to the SFM liquidity pool to a third-party cryptocurrency address for a customized Porsche 911 sports car and a to buy non-fungible tokens.

The charges are allegations and the defendants are presumed innocent until proven guilty.

The government’s case is being handled by the Office’s Corporate and Securities Fraud Section. Assistant United States Attorneys Drew G. Rolle, Matthew R. Galeotti and John O. Enright are leading the prosecution, with assistance from Paralegal Specialist Jacob Menz.

The defendants:

BRADEN JOHN KARONY (aka CPT HODL T MUN)
Age: 27
Provo, Utah

KYLE NAGY (aka “Safemoon Dev”)
Age: 35
Vero Beach, Florida

THOMAS SMITH (aka “Papa”)
Age: 35
Bethlehem, New Hampshire

EDNY Docket No. 23-CR-433

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