In brief
- The U.S. Justice Department has charged a pair of 20-year-olds for allegedly defrauding buyers of an NFT project.
- Ethan Nguyen and Andre Llacuna are the alleged creators of Embers, a project that launched in January.
So-called NFT “rug pulls” or scams hurt buyers who invest their money into hot new projects. But the pseudonymous nature of the crypto space doesn’t mean that alleged scammers can always disappear without consequences, as a pair of NFT creators have discovered.
Today, the United States Department of Justice announced that it has charged a pair of 20-year-olds, Ethan Nguyen and Andre Llacuna, with conspiracy to commit wire fraud and conspiracy to commit money laundering over the Frosties NFT project.
Nguyen (a.k.a. “Frostie” and other pseudonyms) and Llacuna (“heyandre”) are the alleged creators of Frosties, an Ethereum NFT project that held its mint in January. After selling through the 8,888 NFTs and banking about $1.1 million worth of ETH in the process, the creators closed down the project’s Discord channel and disappeared with the funds.
A “rug pull” refers to such instances in which the project’s creators sell NFTs based on false promises of future benefits and utility, but then vanish with the funds instead. Typically, the NFTs lose significant value as a result, given little likelihood of future benefits to come.
Frosties start at just 0.001 ETH (about $3) on the OpenSea secondary market now. They originally sold for 0.04 ETH, which was about $112 at the time of minting.
This is the first known case of the Department of Justice charging NFT creators with alleged conspiracy to defraud buyers—a potential landmark case in the rising NFT industry, which generated some $25 billion in total trading volume in 2021 alone.
“NFT’s have been around for several years, but recently mainstream interest has skyrocketed,” said U.S. attorney Damian Williams, in a release. “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 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,” he continued. “Our job as prosecutors and law enforcement is to protect investors from swindlers looking for a payday.”
Nguyen and Llacuna were arrested in Los Angeles, and according to prosecutors, the alleged scammers were about to launch a second such project called Embers. The Ethereum-based project of 5,555 profile pictures was due to launch on or around March 26, with a potential payday of more than $1.5 million worth of ETH if the mint had sold out.
Each individual was charged with one count of conspiracy to commit wire fraud and conspiracy to commit money laundering, with a maximum sentence of 20 years in prison for each offense.