Two 20-year-old Los Angeles youths are accused of defrauding investors of more than $1 million by creating a bunch of NFTs and abandoning the project after the token sale.
Two 20-year-old Los Angeles youths are accused of defrauding investors of more than $1 million by creating a bunch of NFTs and abandoning the project after the token sale.
Federal prosecutors in New York on Thursday charged Ethan Nguyen and Andrew Llacuna with phone fraud and money laundering conspiracy. According to the government, the two have created a series of non-fungible tokens known as “Frosties”, which are supposed to grant buyers exclusive rights to gift, a game based on the metaverse and move to the future seasons of the NFT.
But instead, prosecutors say, the two men made a “carpet pull” in January – abandoning the Frosties project within hours of selling off the tokens, deactivating a site. web for the NFT and moved about $1.1 million in crypto to a wallet they controlled. They were promoting a second, similar project called “Embers,” which was supposed to launch this weekend when they were arrested in Los Angeles, authorities said.
“NFTs have been around for a few years, but recently mainstream interest has skyrocketed,” said US Attorney in Manhattan, Damian Williams. “Where there is money, scammers will find ways to steal.”
NFT exploded in popularity last year and remains the most talked about sector in the digital world, with Bored Ape Yacht Club promoting the cryptocurrency’s brand. Celebrities, including rapper Eminem and talk show host Jimmy Fallon, own NFT.
Powerful and wealthy investors like Andreessen Horowitz and Animoca Brands have made huge profits and exerted considerable influence over a space that prides itself on user decentralization and control.
According to a recent report by blockchain analytics firm Chainalysis, crypto criminals are making a living as bandits as digital assets grow in popularity. Scam revenue grew 82% in 2021 to $7.8 billion in stolen crypto, with more than a third of that total being purchased from so-called carpet pulling, according to Chainalysis.
“The Frosties carpet pulling is a modern scheme to get money and run,” said Ian McGinley, an attorney for Akin Gump Strauss Hauer & Feld LLP and a former federal prosecutor in the South. District of New York, who served as co-head of the complex fraud and cybercrime investigation unit. “While this is the first federal prosecution in space, it won’t be the last.”
Frosties launched in January with a private presale, and the public sale took place on January 9 on the OpenSea platform, according to court filings. All 8,888 tokens, priced at around 0.04 Ether each, were sold within 48 minutes. The scam could be the first NFT “dragging the rug” of the year, Blockworks reports.
Nguyen, who is also known as “Frostie,” “Jakefunctionyeight” and “Meltfrost,” and Llacuna, who is known as “heyandre,” face up to 20 years in prison if convicted. The couple’s attorney could not be immediately identified.
