The Department of Justice is charging two men in connection with running a fraudulent NFT project that netted the pair $1.1 million, the office of the U.S. Attorney for the Southern District of New York announced in a news release on Thursday.
Scams known as "rug pulls" are bane of any cryptocurrency trader's existence, and this is especially true in the NFT space. Incidents where project developers suddenly disappear with their profits, leaving only broken promises behind, happen so regularly that it's a constant source of anxiety for investors attempting to vet projects before throwing in.
According to the news release, 20 year-olds Ethan Nguyen and Andre Llacuna were arrested in Los Angeles on wire fraud and money laundering charges connected to allegedly running the Frosties NFT project that ended in a rug pull in January.
“NFT’s 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," U.S. Attorney Damian Williams said in a statement. "As we allege, Mr. Nguyen and Mr. Llacuna promised investors the benefits of the Frosties NFT’s, 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.”
Frosties was a collection of 8,888 NFTs that promised the usual gamut of milestones and rewards: a "metaverse" game, giveaways, and the like. But none of it was true, and after all 8,888 tokens were purchased by investors, the project disappeared from the internet in typical rug pull fashion.
Prosecutors allege that Nguyen and Llacuna then "transferred approximately $1.1 million in cryptocurrency proceeds from the scheme to various cryptocurrency wallets under their control in multiple transactions designed to obfuscate the original source of funds."
Not satisfied with their ill-gotten gains, prosecutors allege, Nguyen and Llacuna then spun up another NFT project called Embers that was set to launch in mere days, on March 26. Investigators believe that this was another rug pull in the making and was expected to pull in another $1.5 million, the statement says.
The Embers Twitter account is still live, with its most recent tweet posted 20 hours ago advertising a lottery for entrance to its token presale. That tweet has over 4,000 retweets and more than 5,000 likes.
Nguyen and Llacuna now face up to 20 years in prison and are charged with conspiracy to commit wire fraud and money laundering in connection with the rug pull.