Home » Utah CEO of SafeMoon crypto company arrested on fraud charges

Utah CEO of SafeMoon crypto company arrested on fraud charges

John Karony, 27, and two other company leaders lied to investors and lined their own pockets, federal officials claim.

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Executives at SafeMoon, a Utah-based cryptocurrency company, assured their social media followers in 2021 that they would never defraud buyers, if only because “every member of SafeMoon would be subject to litigation and likely a swift prison sentence … our social lives would be in ruin, and we would not be able to show our faces in public again, let alone get another job.”

Now, three of the company’s top executives — including Utah CEO John Karony, 27, of Provo — have been accused of running a “multi-million dollar international fraud scheme.”

Federal prosecutors have charged the men with criminal securities fraud conspiracy and wire fraud conspiracy in New York District Court; the Securities and Exchange Commission has separately charged them with fraud and selling unregistered crypto securities.

Karony was arrested in Provo this week, according to the U.S. Attorney’s Office, and is scheduled to appear in federal court Wednesday in Salt Lake City for a bail hearing. Chief Technology Officer Thomas Smith, 35, was arrested in New Hampshire. Founder Kyle Nagy, 35, remains at large and has possibly fled the country, according to court documents filed Thursday.

The trio allegedly lied to investors and cashed in on millions of dollars, according to an unsealed indictment and the SEC’s complaint. They used purportedly “locked” assets, charges claim, to pay for custom sports cars, real estate and lavish vacations.

“SafeMoon’s executives grew their company value to over $8 billion, but instead of rewarding their clients as promised, their insatiable greed led them to spend millions of dollars on their own lavish desires,” said Ivan Arvelo, a Homeland Security Investigations special agent, in a news release.

Clayton Simms, Karony’s attorney, said in an interview that his client is “completely and totally innocent” of criminal charges unless and until proven guilty. Karony “absolutely looks forward to defending himself,” Simms said. “An indictment is just the first step, not a conviction.”

Prosecutors have asked that Karony be held without bail, claiming he is a flight risk with family ties outside the country and could tamper with evidence if released. Simms has requested his release; in a petition filed Thursday, he argued “to think that Mr. Karony — who has no criminal history and no history of any substance abuse — would throw away his entire life to become a fugitive from justice strains credulity.”

SafeMoon, which is registered in Utah, posted on social media Thursday that it was “reviewing the recent news and we of course take these issues extremely seriously.”

“As we receive more information, we will do our best to address the situation as quickly as possible,” the company wrote.

According to the SEC’s complaint, SafeMoon executives told buyers that when they traded tokens, 10% would be “taxed,” or withheld, for at least four years. The taxed funds would be held in a purportedly locked pool, which would ensure the tokens’ long-term viability, SafeMoon claimed. SafeMoon told investors the pool would grow and add value for buyers.

“Holding” was a big part of the company’s brand; posts on X and Facebook touted spread the message that “holding is rewarding.”

But executives instead withdrew from those supposedly locked funds and paid themselves, the SEC alleges.

The company experienced a meteoric rise, growing to more than $5.7 billion in market value between March 12 and April 20, 2021.

Then, court documents said, an anonymous social media account warned on about April 21, 2021, that SafeMoon’s liquidity pool, or LP, wasn’t locked, as executives claimed. Founders owned more than half of the company’s liquidity and could “rug pull” — or, take the money and run, the account alleged, adding that the chance of losing invested funds was “absolute.”

The company’s value plummeted. The SEC alleges Karony and Smith then used “misappropriated assets” to buy SafeMoon coins to drive up its price and “manipulate the market.”

Publicly, SafeMoon executives continued to assure buyers that their money was safe, court documents allege, and that they would publicly disclose if they made any withdrawals from the SafeMoon LP.

But a third-party audit that became public also cautioned that executives’ control of the company LP was a “major risk” that could “have devastating consequences to the project as a whole,” according to court documents.

Now, the SEC alleges that transfers out of the pool had begun almost immediately.

“Within two weeks of the SafeMoon Token launch, Nagy had already redeemed LP tokens to transfer more than $500,000 worth of purportedly ‘locked’ retained assets from the SafeMoon LP to the SafeMoon Contract Owner Address under his control,” the complaint claims.

 

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