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Thursday, March 23, 2023

Two Men Have Been Arrested in $1.1 Million NFT Scam

Two individuals have been charged with fraud and money laundering in connection with a bitcoin “rug pull” operation. Ethan Nguyen and Andre Llacuna are accused of earning $1.1 million by selling non-fungible tokens (or NFTs) based on “Frosties,” a cartoon-like character. They shut down the initiative and shifted its cash to a variety of different crypto wallets after selling the NFTs, leaving Frosties owners without the promised benefits.

The Internal Revenue Service, Criminal Investigation (IRS-CI), and Homeland Security Investigations (HSI), according to the criminal complaint, began investigating Frosties in January, immediately after receiving complaints about the fraud. Frosties was a popular initiative, with 8,888 NFTs (equal to $130 in Ethereum) selling out within an hour of its public introduction.

However, as Protocol documents, the developers abandoned it practically quickly. When buyers sought to resell their NFTs, they only received a few bucks, and they gave up all prospect of seeing future promised benefits, such as 3D copies of their avatars and a Frosties video game. (However, some con artists in the community sought to resuscitate the Frosties as a different NFT lineup.) Frosties’ two perpetrators have since been apprehended in Los Angeles, California.

Nguyen appears to have apologized and confessed to the administrator of the Frosties community Discord server in the complaint. “I know it’s hard to believe, but this project is drawing to a close. It states, “I never planned to keep the project running, and I have no plans for the future.” Nguyen also handed the moderator some Ethereum “for your difficulties” and advises them to delete their Discord account, according to the message. “I want you to know that I am concerned about you. It concludes, “I appreciate you, even if you don’t appreciate me.”

The Frosties producers were allegedly confident enough to create a follow-up series named “Embers,” which was set to premiere later in March. While the Red Cross acknowledged receiving the $50,000 payment, Embers’ roadmap featured a community-controlled wallet that would store a quarter of the first sales revenue — and while the former promise looks to be significantly more doubtful.

Investigators linked Nguyen and Llacuna’s Discord account data (including Nguyen’s IP address and Llacuna’s email address and phone number) with associated Coinbase bitcoin trading accounts, among other facts. Law enforcement was able to track the pair down because their Coinbase accounts were linked to a Citibank credit card and a government ID. Investigators then discovered a sequence of transfers in which Nguyen and Llacuna reportedly attempted to conceal where the Frosties monies were being sent, leading to the money laundering charges.

Although crypto “rug pull” techniques are very popular, criminal trials are significantly less so. For one thing, the creators of NFT series seldom divulge their legal names – until recently, even the creators of the ultra-expensive Bored Ape Yacht Club series stayed anonymous. Furthermore, profitable NFT series launches are a recent phenomena. Furthermore, the legal position of NFTs in general might be a bit hazy.

However, the Justice Department’s press release is unequivocal in branding Frosties a con. In a statement, IRS-CI Special Agent-in-Charge Thomas Fattorusso stated, “NFTs represent a new age for financial investments, but the same laws apply to an investment in an NFT or a real estate development.” “You can’t raise money for a business opportunity, then dump it and disappear with the money your investors gave you.” In any case, you shouldn’t admit to it on Discord if you’re going to do it.

Cedric Blackwater
Cedric Blackwater
Cedric is a journalist with over a decade of experience reporting on local US news, and touching on many global topics. He is currently the lead writer for Bulletin News.

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