Feds File Charges in NFT ‘Rug Pull’ Scam for First Time

Federal authorities have charged two men with fraud and money laundering in relation to an NFT “rug pull” scam. Two men allegedly pocketed $1.1 million from investors hoping to strike it rich in the NFT crypto gold rush, only to disappear in the money.

The Verge reports that two men have been arrested and charged with fraud and money laundering in relation to a cryptocurrency “rug pull” scam. Ethan Nguyen and Andre Llacuna were alleged to have earned approximately $1.1 million selling non-fungible tokens (NFTs) based on cartoon characters named “Frosties.”

After the two men sold a significant number of the NFTs, they closed the project and transferred its fund to various cryptocurrency wallets, leaving the NFT owners with none of the features or rewards they were promised. This is commonly referred to in the crypto space as a “rug pull” scam.

A recently filed criminal complaint states that the Internal Revenue Service, Criminal Investigation (IRS-CI), and Homeland Security Investigations (HSI) began investigating the Frosties NFT project in January after receiving complaints related to the scam. Frosties gained a lot of attention in the NFTs space and sold out within an hour of its public launch.

However, the project was abandoned by the creators immediately, abandoning all promises of delivering 3D versions of the Frosties avatars, a Frosties video game, and various other benefits.

The complaint included a number of pieces of evidence including an apparent apology and confession from Nguyen to the moderators of the Frosties Discord server.

The apology reads: “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.” The message adds that Nguyen sent the server moderator some Ethereum “for your troubles.”

The Frosties creators still seemed to have no issues with releasing a follow-up NFT series called “Embers” that was intended to launch in March. The Embers projects included a number of promises, such as plans to donate $50,000 to charity and a community-controlled crypto wallet that would hold a quarter of the initial sales funds.

The Red Cross did confirm it received the donation but there is no further information on the community-controlled wallet.

Read more at the Verge here.

Lucas Nolan is a reporter for Breitbart News covering issues of free speech and online censorship. Follow him on Twitter @LucasNolan or contact via secure email at the address lucasnolan@protonmail.com