👁️ The Psycho and the Showman: Sam Bankman-Fried and SafeMoon's John Karony

John Karony is likeable, greedy, and none too bright. In other words - He is Us.

Hello Dark Markets subscribers, and welcome to a slightly oddly-timed edition, offering some thoughts about the contrasts between SafeMoon CEO John Karony and Sam Bankman-Fried, two very different kinds of fraudsters.

I am very close to finalizing edits of Stealing the Future, my forthcoming book on FTX and Sam Bankman-Fried: it’s frankly surreal to be so close to truly *finishing* this thing. I’ve now been immersed for two years in a story that just gets more grim, serious, and complex the more you look at it - and I’m ready to be done with it.

Luckily, I’ve had a palate cleanser. Because I need to eat am a workaholic, I’ve been covering the criminal trial of John Karony, former CEO of SafeMoon. You can find all of my updates for Protos here, and there will be a wrap-up feature soon.

The SafeMoon story is far funnier, weirder, and frankly, lighter than the FTX story. I’m already starting to think it would make a fun book. Read on for some of my first thoughts on why.

I was very happy to act as a kind of trial surrogate for Coffeezilla, the YouTube investigator who almost singlehandedly blew the case open. Coffee kindly invited me on to discuss what I saw:

I’ve genuinely fallen in love with trial reporting - the liveness of it, the richness of what I can write from it. My encounter with John Karony was a sterling example. I also started doing video updates on the Dark Markets YouTube Channel (please take a moment to subscribe!).

If you’d like to see me cover more of these trials, please consider becoming a paying Dark Markets subscriber below.

John Karony, former CEO of SafeMoon (L) and Sam Bankman-Fried, founder and CEO of FTX and Alameda Research (R)

John Karony: All-American Fraudster

I’m going to say something that a lot of you won’t want to hear: I kind of like John Karony.

Part of that is secondhand. I’ve been listening to Safely to the Moon, a podcast that a few former SafeMoon employees put out last year, and it’s striking how many people really liked Karony. Many accounts of him being a friendly, nice, supportive guy, interpersonally. (I recommend the podcast, it’s full of insights.)

But I don’t mean I like John Karony in the sense that I would want to sit and have a beer with him - crimes aside, he just doesn’t seem like my kind of Guy at all. And he pretty clearly made some extremely, explicitly fraudulent decisions. But as I learned about his story and his life over the course of the trial, I found Karony surprisingly relatable.

That’s an interesting inversion of my experience of covering Sam Bankman-Fried. The more I learned about Sam, the less I liked him. After nearly two years immersed in his story, SBF simply makes my skin crawl.

That could still happen with Karony. I’m considering digging deeper into his story, and I might not like what I find.

But Karony already gave me a pretty good excuse to be creeped out by him. A couple of times during the trial, Karony tried to get a little chummy with me, and with another reporter covering the trial. (I discussed this a bit in my video updates, and will go into more depth in a forthcoming feature for Protos.)

It was frankly bizarre - a defendant trying to butter up the press in the courtroom is just a wild move. But even as weird as this reflexive charm offensive was in substance, I can’t say he gave me bad vibes.

This obviously contrasts a lot with Sam Bankman-Fried, whose colleagues pretty consistently described him as a bully, and whose affect was generally some variation of self-absorbed superiority.

Those surface vibes. though, reflect much more substantive differences between Karony and SBF.

The Schemer and the Bumbler

It’s true that Bankman-Fried’s crimes were much more severe: he stole $11 billion dollars, compared to a total of $200 million stolen from SafeMoon investors, of which Karony could only be credibly held responsible for a portion. But scale isn’t really my point here, either.

The key differences between SBF and John Karony are, instead:

• SBF created FTX and planned the scheme; Karony joined SafeMoon in progress.

• SBF’s use of customer crypto was unambiguously theft. Who ‘owned’ the liquidity pool funds at the heart of the SafeMoon scandal was genuinely much less clear.

• SBF had top-tier experience in finance and crypto; Karony, before joining SafeMoon, knew little or nothing about either.

• FTX was convincingly sold as a real company. SafeMoon’s scammy nature was obvious from the name down.

• SBF had immense privilege; Karony still had a lot - but far less.

• SBF actually had the skills and connections to build a real, global-scale company. Karony pretty clearly did not.

• SBF’s crimes were driven by indoctrination in a very strange ethical worldview. Karony’s crimes were driven by far more relatably human flaws.

• Sam Bankman-Fried wanted to subvert the democratic processes of the United States. John Karony just wanted a Lambo.

At the highest level, I think John Karony was the wrong guy, in the wrong place, at the wrong time. He was suddenly tasked with leading a project whose explosive growth was already premised on fraudulent claims: As detailed at trial, SafeMoon developer Kyle Nagy had already taken funds from the SafeMoon liquidity pool before John Karony even heard of SafeMoon.

I’ll admit I’m generalizing to Karony a bit from the testimony we heard from Thomas “Papa” Smith, the former SafeMoon CTO who was charged with Karony, pled guilty, then testified against the former CTO. The story Smith told was that basically everyone fell into the SafeMoon situation unexpectedly.

I’m still pretty hazy on how SafeMoon became such a huge deal so fast - within just a couple of weeks of launching. There does seem to have been some early wash trading, but I don’t have a timeline for that yet. The former staffers on Safely to the Moon podcast think that the name alone did a lot of the work.

But whatever the reason, as Smith testified, SafeMoon was already on an explosive trajectory when Nagy called Smith for help, and Smith in turn brought in Karony. Throughout the trial, we saw messages between Smith and Karony, neither seemingly able to believe their good luck - and they 100% understood it to be luck. They had stumbled into something that neither of them really understood, but they were ready to ride the dragon to, in Smith’s favorite phrase, “castle money.”

Smith’s testimony also conveyed that, before SafeMoon, the group was barely scraping by. In early 2021, Smith was working for Karony at a company called Tano, which was trying to build games. But this may have been little more than a LARP: Smith testified that his tiny salary at Tano - less than $3,000 a month - was paid from Karony’s credit card.

Smith came across in his testimony as truly contrite and humbled by his experience. He talked about how he saw his own morals being subverted by getting entangled in the SafeMoon fraud. He seems to have come from a much more humble background than even Karony, to say nothing of Bankman-Fried, and the money that came with SafeMoon was life-changing in a way that seems to have genuinely overwhelmed Smith’s better sense.

Obviously, Smith is not Karony - for one thing, unlike Karony, Smith seems like a guy I would enjoy having a beer with. But it all speaks to the far more human nature of the SafeMoon story. Of course, Caroline Ellison also testified to regret over her role in the FTX frauds, but she both a) had many, many other options open to her, as a high-achieving Stanford graduate, and b) Caroline Ellison is a scientific racist.

So, frankly, fuck her.

There is of course one aspect of the Karony case that echoes strangely with SBF’s: In both instances, parents with some weird connections got way too involved. Brandon and Jennifer Karony are very tied to U.S. intelligence - Brandon as a former agent, and Jennifer in some more ambiguous and frankly ominous capacity as head of The Barajally Group. I have no illusions that they, or anyone involved here, are “good” people - I don’t think you join the C.I.A. if you have a genuine moral compass.

But I still find Brandon and Jennifer far, far less sinister than, in particular, Barbara Fried, who devoted her entire career to advancing a utilitarian ideology that I am increasingly convinced is not simply misguided, but a pillar of the broader rise of Silicon Valley Fascism.

I’ve had enough of grappling with that incredible darkness, at least for now. I know it’s a perverse thing to say, but by comparison, SafeMoon is almost comforting. Americans have been ripping each other off with harebrained schemes for centuries.

John Karony’s P.T. Barnum-esque fraud is as much of an American tradition as Mom, baseball, and apple pie.