The Department of Justice announced two defendants have been charged with fraud for the 2022 Frosties NFT rug pull scheme.
Ethan Nguyen and Andre LLacuna were known by the user names ‘Frostie’ and ‘heyandre’ online in the crypto and NFTs space, and now face up to 20 years in jail for what the DOJ consider a non-fungible token fraud and money laundering scheme.
$ 1 Million NFT Fraud Scheme
The charges include conspiracy to commit wire fraud and defraud NFT investors out of a million dollars, transferring invested funds to their crypto wallets rather than provide the benefits advertised to buyers of Frosties NFTs.
Frosties NFT arrest charges
Read the full DOJ release from March 24th at here at justice.gov.
The press release goes on to quote US attorney Damian Williams:
‘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. When Frosties NFTs sold out, they pulled the rug out from under the victims, 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.’
Just before being arrested, Nguyen and LLacuna were promoting another new NFT project called Embers, which was expected to be one of the latest NFT drops and generate another $ 1.5 million – scheduled for today March 26th. That second NFT rug pull scam was averted just in time.
Exlawyer.eth on Twitter posted a detailed tweet thread on how the two NFT scammers were caught:
Today, two 20 year olds who rug pulled for at least $ 1.1 million with “Frosties” were charged for wire fraud and related crimes. A
First, disclosures: I am not a criminal lawyer and I have never practiced criminal law. Nothing here should be construed as legal advice.
— exlawyer.eth/tez (@exlawyernft) March 25, 2022
As he points out, the news of their arrests is potentially bullish for NFTs as it will act as a deterrent to future scammers planning NFT rug pulls, and shows there are techniques and laws on the books to deal with NFT scams – governments shouldn’t need to pass any onerous regulations.
The news was picked up by Yahoo Finance and Protocol who quoted a former director of the Blockchain Intelligence Group, Mike Fasanello, as saying the digital assets space is arguably ‘proving to be a more transparent system than fiat‘.
It follows on from exciting news that Bored Ape Yacht Club makers Yuga Labs will be launching a Metaverse project of their own in April.
There has also been a lot of buzz around ApeCoin, a new cryptocurrency with the ticker APE that will play a role as a governance token in that metaverse.
NFT price floors have been holding strong or increasing in recent days, notably the Azuki price floor is up 5.7% in the last 24 hours, a top 5 ranked NFT collection.
Unfortunately some investors are still falling prey to scams such as a $ 500k NFT airdrop scam we reported on (March 29, 2022).
While an NFT ‘rug pull’ is where developers shut down and leave a project with investor funds (pulling the rug out from under them) airdrop scams work in a slightly different way. The victim is promised that some promotional NFTs or crypto will be airdropped to them if they connect their wallet on a fake website – when they do so, any funds in their wallet are drained and stolen.
Cryptoassets are a highly volatile unregulated investment product.