U.S. Prosecutors Crack Down on Fraudulent NFT Project Creators
On March 24, 2022, an unsealed complaint before the U.S. District Court for the Southern District of New York charged two individuals with conspiracy to commit wire fraud and conspiracy to commit money laundering based on an alleged fraudulent NFT project scheme titled “Frosties.”
In January 2022, the Internal Revenue Service Criminal Division and the Department of Homeland Security started investigating a possible fraud scheme concerning the sale of non-fungible tokens (“NFT”). A non-fungible token is “a non-interchangeable unit of data stored on the blockchain that can be sold and bought.” What this means in English is anybody’s guess; another way to describe NFTs is as follows: an NFT is generally a data file that contains a unique, limited edition digital image or artwork that is highly collectible, and in certain cases, very valuable. In addition, these images or works of art are distinctly identifiable on the blockchain (i.e., a database that stores data in the form of blocks that cannot be modified unless the entire database is modified).
According to the complaint, two individuals engaged in an alleged “rug pull” scheme, where an individual seeks money for their NFT project, receives investments, dumps the project, and illegally keeps all the money. The complaint alleged that this was exactly what the two individuals, Ethan Nguyen and Andre Llacuna, had done. Mr. Nguyen and Llacuna are both twenty years old and often use different aliases when communicating online such as “Frostie,” “JoboEthan,” “heyandre,” and others. In addition to the usage of aliases to mask their true identities, the two men allegedly used VPNs, or virtual private networks, to encrypt their internet data and hide their IP addresses from law enforcement. The two men were ultimately apprehended and arrested in Los Angeles, California.
Their NFT project, “Frosties,” sold NFTs that took the form of unique cartoon characters that usually had an ice cream cone attached to them. On their project’s website, the two individuals told purchasers of their NFTs that there were certain benefits to being a “Frosties” NFT owner, which included “giveaways, early access to a metaverse game, and exclusive mint passes to upcoming Frosties seasons.” The upcoming “Frosties seasons” referred to the future NFT projects to be released by the duo; the real supposed value in these NFTs, like most NFTs, was their unique nature of being virtual, limited edition pieces of art that could not be replicated.
On January 9, 2022, the two individuals, after selling all their NFTs and acquiring $1.1 million in cryptocurrency (i.e., digital currency), abandoned the project. As such, the two men deactivated the NFT project’s website and social media accounts and seemingly abandoned all the promises made to purchasers of their NFTs. During the process of abandoning the project, the two individuals allegedly distributed the $1.1 million to different digital currency wallets in different transactions in an attempt to cover up any traces of fraudulent activity.
Before the individuals were apprehended, they had planned to release another NFT project titled “EmbersNFT” on March 26, 2022, which was going to be another fraudulent NFT scheme.
The government is represented by Assistant U.S. Attorney Danielle Kudla.
Counsel information for Ethan Nguyen and Andre Llacuna is currently unknown.
This case is U.S. v. Ethan Nguyen et al., case number 22-MJ-2478, in the U.S. District Court for the Southern District of New York.
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