DoJ Cracks Down on $1.1M NFT Rug Pull
- The founders of NFT project “Frosties”, Ethan Nguyen and Andre Llacuna, were arrested on Thursday and charged for fraud and money laundering.
- The two individuals, who took off with $1.1 million in January, were preparing to hold another alleged NFT rug pull later this year.
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The United States Department of Justice (DoJ) has charged two individuals with conspiracy to commit wire fraud and money laundering through a non-fungible tokens (NFT) scam, the agency said in a press release on 24 March.
According to the announcement, the two founders of NFT project “Frosties”, Ethan Nguyen and Andre Llacuna, were accused on Thursday of concealing their identities with the intent of performing a “rug pull”. The two individuals were both charged with one count of wire fraud and one count of conspiracy to commit money laundering connected to a “million-dollar scheme to defraud purchasers”. IRS-CI special agent-in-charge Thomas Fattorusso said in a statement:
“NFTs represent a new era for financial investments, but the same rules apply to an investment in an NFT or a real estate development. You can’t solicit funds for a business opportunity, abandon that business and abscond with money investors provided you. Our team here at IRS-CI and our partners at HSI closely track cryptocurrency transactions in an effort to uncover alleged schemes like this one.”
Rug pull refers to a situation where the creator of a project solicits investments, but then abandons the project and steals the investors’ funds. The DoJ alleges that this is exactly what happened with “Frosties”, seeing as Nguyen and Llacuna abruptly abandoned and shut down the project only hours after selling out $1.1 million worth of NFTs, the proceeds from which were transferred to various crypto wallets to obfuscate their original source.
The DoJ also revealed that the two individuals were preparing to launch another NFT sale, this time from a project dubbed “Embers”, which was expected to generate “approximately $1.5 million” in crypto. The tow, however, were arrested in Los Angeles prior to the launch of “Embers”, and now face a lengthy sentence, as each count they were accused of carries a maximum sentence of 20 years.
- The New York Jurors took 4 fours of deliberating before pronouncing the former FTX CEO guilty of all seven charges of fraud and conspiracy to commit fraud.
- Bankman-Fried will now have to appear in court on 28 March, 2024, where he will face a potential maximum sentence of 115 years in prison.
Former CEO of FTX Sam Bankman-Fried leaves the Federal Court in New York after pleading not guilty, 3 January, 2022.
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- The prosecution tried to paint FTX’s founder as someone who deliberately deceived his customers to get rich, and noted that he directed all activities that led to the failure of the company.
- The defense’s claimed SBF was an entrepreneur whose plans simply “didn’t work out”, and tried to cast the blame for Alameda’s downfall to its former CEO Caroline Ellison.
- Sam Bankman-Fried’s legal counsel had claimed he should not be charged with any crimes involving FTX as it was not regulated in the U.S., only FTX.US was.
- The DoJ said the claim was irrelevant as SBF was charged for violating existing laws for misappropriating customer assets.