NFT Rugpull ends in Criminal Charges
On March 23rd 2022, the US Justice Department charged two young men in connection with perpetrating an NFT rugpull fraud.
Ethan Vinh Nguyen, 20, and Andre Marcus Quiddaoen Llacuna, 20, are charged with conspiracy to commit wire fraud and conspiracy to commit money laundering, and face maximum sentences of 20 years in prison for each of these charges.
A rug pull is when an NFT project solicits investments, then they suddenly abandon the project while retaining the investors’ funds.
They were arrested in Los Angeles, California, for orchestrating and executing a rugpull scheme on NFT buyers through their project, Frosties NFT on the Ethereum blockchain.
The project was launched via a presale on January 8 2022, followed by an open mint on January 9th. They managed to sell out all 8888 NFTs in less than an hour for 0.04 ETH each. This was a clearly successful launch, heralding a bright future ahead with the support of a committed community and over $1,000,000 USD in hand to achieve their stated goals. But instead of continuing with this great start, the defendants transferred all the ETH to new wallets and scrubbed thier social media within 3 hours. By all accounts, this is the definition of a rugpull.
The Frosties promised all the features that many NFT buyers are looking to be offered; Staking, Breeding, 3D Modelling and of course the buzz words of the year, Metaverse Development. However, it is illegal to solicit funds for a business-related opportunity and then abscond with the investment. It's the same with any business from retail to real estate, NFT businesses fall under the same laws.
Frosties will have staking, metaverse, breeding functions, and so much more! ...The development roadmap will start right after the mint date and includes MetaVerse development, Staking, 3D models of existing Frosties, and more!
Quote source: nftevening.com/event/frosties-drop/
In the approach to launching an NFT project on Discord, moderators are instrumental in helping grow the membership and create a stable community. After developing a rapport with moderators and supporting buyers, then rugpulling the project, the Frosties team sent a damning message to one of their moderators as some form of an apology and explanation. Showing remarkable honesty while incriminating themselves as having had the intention to pull the rug the entire time, this piece of evidence may well have been the nail in the coffin.
As of the time, this article was written, there are still 2176 unique holders of Frosties NFTs. Many buyers have sold hoping to recoup some losses, with the price now driven down to 0.0088 on Opensea.io. Some holders have banded together and are attempting to rebuild the community under a new smart contract by wrapping the tokens and calling it "Wrapped Frosties".
The duo behind Frosites had another project called Embers set to launch Saturday, March 26th, the announcement can still be found listed on some third-party NFT Launch advertisement sites.
Embers’ roadmap included a $50,000 charity donation, and to the pairs only credit, the Red Cross has reportedly confirmed receiving the donation.
The NFT Space is a new frontier, and buyers must beware and do their research as they should for any investment. At the same time, criminal-minded individuals should note that even in the Wild West, the Marshalls were there to uphold the law.