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The SEC claims that SafeMoon executives took $200 million out of the cryptocurrency project to buy fancy cars and homes

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    The SEC has accused the creator of the Safemoon cryptocurrency and related executives of violating securities laws.

    Photo Illustration by Fortune

    The company behind SafeMoon promised astronomical returns, but instead the cryptocurrency imploded mid-flight. And now those behind the controls are facing the consequences.

    In a Wednesday complaint, the Securities and Exchange Commission charged the company behind the coin, SafeMoon LLC, along with creator Kyle Nagy, CEO John Karony, and CTO Thomas Smith, with violating securities laws in “a massive fraudulent scheme.”

    The Department of Justice brought parallel charges against the trio, hitting them with three counts each of conspiring to commit securities fraud, wire fraud, and money laundering. Karony and Smith were arrested Wednesday, but Nagy is still at large, according to the DOJ.

    Although the defendants promised to steer the token “safely to the moon,” the SEC alleges that company leaders secretly took out more than $200 million in crypto assets from the project to pay for, among other things, McLaren cars, luxury homes, and extravagant travel.

    The cryptocurrency accumulated a $5.7 billion market cap at its peak, following a more than 55,000% surge from March 12 to April 20, 2021. Things then quickly began to unravel when investors discovered that large portions of SafeMoon’s liquidity pool were never locked, sinking the token’s price by 50%.

    Nagy, according to the SEC, had promised investors that their funds were safely locked in SafeMoon’s liquidity pool, and that not even top executives could access them.

    The complaint also alleges that Karony and Smith used misappropriated assets to buy large quantities of SafeMoon in an attempt to stabilize the token’s price, and that Karony created a trading account to buy and sell tokens “to create the impression of market activity, a practice known as wash trading.”

    The defendants stand accused of violating the registration and anti-fraud provisions of the Securities Act of 1933 and the anti-fraud provisions of the Securities Exchange Act of 1934.

    The SEC has stepped up its crypto enforcement actions this year despite criticism from industry players. In June, the agency sued the world’s biggest crypto exchange, Binance, and CEO Changpeng “CZ” Zhao for several alleged securities violations. The agency also sued U.S.-based crypto exchange Coinbase.

    The Safemoon cryptocurrency on Thursday plummeted more than 70% following news of the charges by the SEC and DOJ.

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