US DoJ Arrests Two Men Over NFT Rug Pull Scam

Anyone taking the risk of investing in new crypto projects without due diligence may be scammed. Even though transactions in the crypto space are pseudonymous by nature, it doesn’t mean that fraudsters can always get away without consequences. Two NFT creators had to learn this lesson the hard way. 

The Scam Attempt

On Friday, the US DoJ announced it had arrested two 20-year-old males over conspiracy to commit fraud and launder money through a BTC rug pull scam. The two persons (Andre Llacuna and Ethan Nguyen) attempted to run away with the proceeds from their ‘frosties’ NFT sales (valued at over $1m) without offering exclusive rights to the buyers as stipulated in terms of agreement before the sale of the NFTs.

The frosties NFTs (based on snowman’s character) were listed for sale on OpenSea’s secondary market for as low as 0.001 ETH (approximately $3). While they were sold for about $113 (or 0.042 ETH) during the minting period, the hugely expected NFTs were sold out in less than 60 minutes on the launch date.

The Arrest And An Identical NFT

Part of the bonuses attached to the offer include passes to other NFT seasons, exclusive access to metaverse-built games via 3D avatars. Strangely, the creators didn’t fulfill their bonus promises. Instead, they transferred $1.2m worth of BTC from the proceeds of this sale to other crypto wallets they own. When security agents arrested the creators in Los Angeles, they’ve started promoting another similar initiative called ‘Embers,’ and they have scheduled to hold its public launch later in the week.

A look at the roadmap for their second NFT initiative shows a planned $55K donation to a recognized NGO and a community-owned crypto wallet which will be used to keep 25% of all earnings during the initial sale period. Even though the red cross society admitted that they’d received the $55K donation, the community-owned wallet is likely a big lie as the two creators may control transactions in the wallet.

The First Alleged NFT Rug Pull Scammers

Since rug pull cases became a phenomenon in the crypto space, Nguyen and Llacuna would be the first persons to be accused of pulling an NFT-related rug pull. This case represents a huge dark spot in the flourishing NFT space. Crypto market analysts predict that the NFT space will be a $26B trade volume market for only this year.

A rug pull refers to cases where project creators sell their works (in this case, NFTs) using false promises but absconded with the funds. Expectedly, such NFTs lose value since future benefits are unlikely. An official statement from the DoJ states that “Mr. Nguyen and Mr. Llacuna absconded with proceeds from their ‘sold out’ frosties NFT sales without redeeming their pledge to the buyers of the NFTs.”

This case is one of many similar cases the US DoJ is investigating. The department recently established a ‘crypto enforcement team’ saddled with investigating crypto-related scams.