US court indicts creators of NFT project who carried out a $1.1 million ‘Rug Pull’ scam

Charlie Taylor


The US Department of Justice (DOJ) on Thursday indicted Ethan Nguyen and Andre Llacuna, a couple in their 20s, of wire fraud and money laundering conspiracy with the NFT Frosties project. They are accused of having applied a scam called ‘rug pull’, in Portuguese, which are schemes that raise funds for a new cryptocurrency project, in this case NFTs, and then the team abandons the project and fades away. However, the pseudonymous nature of the cryptocurrency industry does not mean that would-be scammers can always disappear without consequences — as Nguyen and Llacuna discovered. Nguyen (or “Frostie”, among other aliases) and Llacuna (or “heyandre”) are the alleged creators of Frosties, an NFT project developed on Ethereum that carried out its issuance in January. After selling the 8,888 NFTs and making about $1.1 million worth of ether in the process, the creators closed the project’s Discord channel and disappeared with the funds. A “pull of the rug” refers to such examples, where the creators of a project sell NFTs on the basis of false promises of future benefits and utility but instead disappear with the funds. As a consequence, NFTs lose significant value due to the minimal likelihood of future benefits arising. Now, Frosties are priced at just 0.001 ETH (about $3) on the OpenSea secondary market. They previously sold for 0.04 ETH (equivalent to $126 at press time). This is the first time the Justice Department has accused NFT creators of alleged buyer fraud conspiracy — a possible milestone in the burgeoning NFT industry, which generated an estimated $25 billion in total trading volume in 2021 alone. “NFTs have been around for a long time. several years, but recently popular interest has skyrocketed,” said Attorney General Damien Williams. “Where there is money to be made, fraudsters will look for ways to steal it.” “As we allege, Messrs. Nguyen and Llacuna promised investors the benefits of the Frosties NFTs, but when they sold out, they ‘pulled the rug’ for victims, almost immediately suspending the site and transferring the money. Our job, as prosecutors and officials, is to protect investors from crooks looking for easy money,” he concluded. Nguyen and Llacuna were arrested in Los Angeles and, according to the prosecution, the alleged fraudsters were about to launch a second project called Embers. The launch of the project developed on Ethereum of 5,555 profile images was scheduled for this Saturday (26), with a possible profit of more than $ 1.5 million in ether if the tokens sell out. Each creator has been charged with wire fraud conspiracy and money laundering conspiracy charges and faces a maximum sentence of 20 years in prison for each crime. *Translated by Daniela Pereira do Nascimento with permission from Decrypt.co.

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