In a statement released by the U.S. Attorney’s Office, Southern District of New York, it was announced that two men were charged in a non-fungible token (NFT) fraud and money laundering scheme. The two defendants carried out a $1 million NFT fraud scheme in January 2022, and we’re planning to do another one by the end of March. This adds to the growing list of NFT frauds and scams since the popularity of the token.
Two 20-Year-Olds Executed a $1 Million NFT Fraud Scheme
Ethan Nguyen and Andre Llacuna, two 20-year-olds, were charged with fraud and money over an NFT rug pull scheme. They executed this by selling non-fungible tokens (NFTs), which they called Frosties, and earned about $1.1 million. After their investors purchased the NFTs, they closed the projects down and transferred the money to different cryptocurrency wallets, leaving the NFT owners confused.
The investigation started in January with the Internal Revenue Service, Homeland Security Investigations, and Criminal Investigation (IRS-CI) partnership after receiving complaints. When Frosties was launched, it sold out within an hour, priced at around $130 in Ethereum.
There were 8,888 NFTs, but after it was sold out, the creators pulled out, and buyers earned only a few dollars when they tried to resell. Any future hope of getting more money from the promised video game and 3D avatars was gone, although some scammed Frosties-owners attempted to resurrect the NFTs separately.
Nguyen sent an apology and confession to the moderator of the Frosties community Discord server, which stated, ‘I know this is shocking, but this project is coming to an end. I never intended to keep the project going, and I don’t have a plan for anything in the future.’ He also offered him some Ethereum for his trouble and asked him to delete the account because he would take the heat.
In the press conference, the U.S. Attorney General, Damian Williams, stated, ‘NFTs have been around for several years, but recently mainstream interest has skyrocketed. Where there is money to be made, fraudsters will look for ways to steal it. As we allege, Mr. Nguyen and Mr. Llacuna promised investors the benefits of the Frosties NFTs, but when it sold out, they pulled the rug out from under the victims, almost immediately shutting down the website and transferring the money. Our job as prosecutors and law enforcement is to protect investors from swindlers looking for a payday.’
The Defendants Were Planning to Execute Another Before the Arrest
Before the defendants were arrested, Nguyen and Llacuna appeared to have been advertising a new NFT project called Embers, similar to the Frosties project. It was supposed to launch around the 26th of March, 2022.
The roadmap of this NFT project included a community-controlled wallet that would hold ¼ of the initial sales funds and a $50,000 charity donation. Red Cross confirmed the latter, but there is no guarantee of the former. The defendants felt confident enough to pull another scam before they were caught.
Nguyen and Llacuna are charged with one count to commit wire fraud and one count to commit money laundering, carrying a maximum sentence of 20 years in prison each.
NFT Fraud, Scams and Money Laundering Increase Significantly
The case of Nguyen and Llacuna is a new addition to the many NFT and crypto rug-pull schemes and frauds. It’s a common practice for the legal identities of the developers of an NFT series to be unknown, as even the founders of the famous and expensive Bored Ape Yacht Club were anonymous for a long time.
Also, NFT series launches have become quite popular and usually lucrative, while the legal status of NFTs remains confusing. As the US Postal Inspection Service Inspector-in-Charge stated, ‘Today’s arrests involved Non-Fungible Tokens (“NFTs”), opening the door to alternative investment options and substantial risk. These assets may seem like a good deal or a way to become wealthy, but in many cases, as in this situation, only lead to the loss of your money.’
Those interested in NFTs are encouraged to tread carefully before investing and always do the necessary research on less popular tokens with no information on the founders.