US court sues creator of NFT project for $1.1 million ‘carpet-pulling’ scam

The U.S. Department of Justice (DOJ) on Thursday indicted Ethan Nguyen and Andre Llacuna, a couple in their 20s, for wire fraud and money laundering conspiracy in the NFT Frosties project.

They were accused of applying a scam called “rug pull” in Portuguese, a scheme to raise funds for a new cryptocurrency project, in this case an NFT, before the team abandoned the project and faded away.

However, as Nguyen and Llacuna discovered, the anonymous nature of the cryptocurrency industry does not mean that potential scammers can always disappear without consequences.

Nguyen (or aliases like “Frostie”) and Llacuna (or “heyandre”) are said to be the creators of Frosties, an NFT project developed on Ethereum that launched in January.

After selling 8,888 NFTs and earning about $1.1 million worth of ether in the process, the creator closed the project’s Discord channel and disappeared with the funds.

“Pulling the rug” refers to instances where the creator of a project sells NFTs based on false promises of future earnings and utility, but disappears with the funds.

As a result, NFTs lose significant value due to the low probability of future gains being generated. Right now, Frosties is priced at just 0.001 ETH (about $3) on the OpenSea secondary market. They were previously sold for 0.04 ETH (equivalent to $126 at press time).

This is the first time the Justice Department has charged the creator of an NFT with a conspiracy to commit buyer fraud — a potentially milestone for the burgeoning NFT industry, which will generate some $25 billion in total transaction volume in 2021 alone.

“NFTs have been around for several years, but interest has skyrocketed recently,” Attorney General Damien Williams said. “Where there’s money to be made, crooks will find ways to steal it.”

“As we said, Mr. Nguyen and Llacuna promised investors the benefits of Frosties NFTs, but when they sold out, they “pulled the rug” for victims, suspending the site and transferring funds almost immediately. As prosecutors and officials , our job is to protect investors from scammers looking for easy money.”

Nguyen and Llacuna were arrested in Los Angeles and, according to prosecutors, the alleged fraudsters are about to start a second project called Embers. The project to develop 5,555 profile images on Ethereum is scheduled to launch this Saturday (26th), and could fetch more than $1.5 million in ether profits if the tokens are sold out.

Each creator has been charged with wire fraud conspiracy and money laundering conspiracy, each of which carries a maximum sentence of 20 years in prison.

*Translated by Daniela Pereira do Nascimento with permission Decrypt the website.

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