Two men face 20 years in prison over $1.1 million NFT rug pull scam
Another warning to be wary of NFT schemesBy Rob Thubron 19 comments
What just happened? Another day, another NFT scam; this time it's of the rug pull variety. Two men have been charged with conspiracy to commit wire fraud and money laundering after they made $1.1 million from a non-fungible token project before abandoning it without fulfilling any of the promises they made and leaving buyers with nothing to show for their investments.
The Department of Justice is charging 20-year-olds Ethan Nguyen and Andre Llacuna for allegedly running the Frosties NFT project, which saw its 8,888 NFTs, each priced at around $180, sell out within an hour of their public launch.
🚨Breaking🚨--- Whale Coin Talk 🐳 (@WhaleCoinTalk) January 13, 2022
Frosties NFT Project rugpulled, causes millions in losses to the investors ❌
This is the first known NFT scam of the year. Investors have reportedly lost $1.3 million🤯#Whalecointalk #CryptocurrencyNews #Rugpull #Frosties #Opensea pic.twitter.com/17jNb4rX8Q
Like similar NFT collections, buyers were promised rewards such as a "metaverse" game, giveaways, 3D versions of their avatars, etc. There was also the potential to make a lot of money by reselling their NFTs at a higher price.
But soon after the initial sale was complete, all trace of the Frosties project vanished from the internet, including the Discord server, and buyers found they could only get a few dollars from the sale of their NFTs.
The criminal complaint against the pair includes what appears to be an apology from Nguyen to one of the server's mods. "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," it reads. The mod was also sent some Ethereum for their troubles, and Nguyen recommended that they delete their Discord account to avoid any heat from angry project investors.
Prosecutors say Nguyen and Llacuna transferred around $1.1 million in crypto they made from the scheme to various wallets in multiple transactions designed to obfuscate the source of the funds.
That's usually where the story ends, but it seems the pair were emboldened by their success. They put together a follow-up series of NFTs called Embers that was supposed to launch in March. There was even a roadmap that promised $50,000 would be donated to the Red Cross, which the charity says it did receive, and that 25% of the funds from the mint would go into a community-controlled wallet. Investigators say this would have been another rug pull scheme and that it could have earned an extra $1.5 million.
The Verge writes that investigators were able to match Nguyen and Llacuna's Discord account data, including the former's IP address and the latter's email address and phone number, with corresponding accounts on Coinbase. These accounts on the crypto exchange were linked to a Citibank credit card and government ID that enabled authorities to track them down, and both men now face up to 20 years in prison.