The Department of Justice (DOJ) has rounded up two men who allegedly ran two fraudulent NFT projects.
United States government prosecutors have charged two 20-year-old men, Ethan Nguyen and Andre Llacuna, with fraud and money laundering. The two men, founders of the “Frosties” NFT project, are accused of concealing their identities to operate a “rug pull” on the Frosties community.
Allegedly, Nguyen and Llacuna earned around $1.1 million from the sales of their Frosties NFTs and afterward shut down the project, but not before transferring the funds to several crypto wallets. The rug pull left Frosties owners deprived of their promised rewards, including giveaways, access to a Metaverse game, and exclusive access to the project’s future mints.
The DOJ Acts on Rug Pullers
As per the U.S. government’s criminal complaint lodged against Nguyen and Llacuna, the Internal Revenue Service Criminal Investigation (IRS-CI), New York Field Office of the Department of Homeland Security Investigations (HSI), and the U.S. Postal Inspection Service (USPIS) have been closely watching the two since January. About that time, several complaints about the scam were forwarded to IRS-CI and HIS.
A press release from the Attorney’s Office of the Southern District of New York dated March 24 said that Nguyen and Llacuna were apprehended in Los Angeles. Both men were charged with one count of fraud wire and one count of conspiracy to commit money laundering in “connection with a million-dollar scheme to defraud purchasers” of the Frosties NFTs.
The DOJ’s complaint further alleges that the duo “abruptly abandoned” and closed the project mere hours after selling NFTs worth $1.1 million. The two then transferred the proceeds to different crypto wallets “under their control in multiple transactions designed to obfuscate the original source of funds.”
“As the term suggests, a ‘rug pull’ refers to a scenario where the creator of an NFT and/or gaming project solicits investments and then abruptly abandons a project and fraudulently retains the project investors’ funds,” the press release further stated.
Crypto World Under Close Scrutiny
In the same press release, Special Agent-in-Charge Thomas Fattorusso of the IRS-CI gave a stern warning to anyone who would follow in the heels of Nguyen and Llacuna. He said his team has its eyes on crypto movements. Even though NFTs are a relatively new financial investment option, the “rules apply to an investment in an NFT or a real estate development,” he said.
“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,” Fattorusso said.
The DOJ further disclosed that before Nguyen and Llacuna were arrested in Los Angeles, the two were already preparing to launch the sale of another NFT project, “Embers,” which was touted to rake in “approximately $1.5 million in cryptocurrency proceeds.”
Should Nguyen and Llacuna be found guilty, they might stay behind bars for a long time since a count of fraud and money laundering carries a maximum prison sentence of 20 years each.
Although several suspect NFT projects flew under the DOJ’s radar last year, it is speculated that the department is doubling up its efforts and keeping its eyes trained on NFTs this year through a team formed in October, the National Cryptocurrency Enforcement Team (NCET).
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