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The US Department of Justice has arrested two in a $1.1 million non-fungible token fraud and money laundering case where a rug pull scheme was used.
The two arrested individuals, Ethan Nguyen and Andre Llacua are accused of selling NFTs called “Frosties” and taking the proceeds in a “rug pull scheme”. The rug pull scheme involves the creator of the NFT or gaming program taking in investments and then suddenly disappearing while fraudulently retaining the investors’ money.
The two individuals reportedly raised $1.1 million by selling the NFTs, which are tradable digital representations of art and other items, and then closed down the project without providing the owners of Frosties the promised rewards.
The investors were promised holder awards, giveaways, early access to a metaverse game, and exclusive mint passes to upcoming Frosties seasons.
However, in January, the accused dropped the Frosties NFT project just a few hours after selling out of their NFTs. The process involved the deactivation of the Frosties website, transfer of money to cryptocurrency wallets, and concealing the origins of the obtained money.
Prior to the arrest, Nguyen and Llacua were promoting a second NFT project under the name of “Embers”. Embers NFT also had similar characteristics as the Frosties NFT and was found to be part of another fraud scheme after its launch on March 26.
“NFTs represent a new era for financial investments, but the same rules apply to an investment in an NFT or a real estate development,” Thomas Fattorusso, a criminal investigation agent-in-charge for the Internet Revenue Service, said in a statement. “You can’t solicit funds for a business opportunity, abandon that business and abscond with money investors provided you.”
U.S. Attorney Damian Williams noted that “where there is money to be made, fraudsters will look for ways to steal it.” Just like the days when cryptocurrency was new, the NFT market is also starting to get flooded with scammers trying to cash in on investors entering the market because of a fear of missing out.
The accused pair have each been charged with one count of committing wire fraud, which carries a maximum sentence of 20 years in prison, and one count of conspiracy to commit money laundering, which also carries a maximum sentence of 20 years in prison.