On Thursday, Federal prosecutors in New York charged two men for defrauding investors of over $1 million by running a “rug pull” scam through the NFT project.
The case stated that Ethan Nguyen and Andre Llacuna fetched nearly $1.1 million by selling “Frosties” NFTs that feature cartoon-like characters. Later on, they both abandoned the project without any prior settlement and transferred all funds to different wallet addresses, leaving Frosties owners bereft of promised rewards.
The investigation was started in January by the Internal Revenue Service, Criminal Investigation (IRS-CI), and Homeland Security Investigations (HSI) just after the complaint was raised.
Frosties was one of the fastest ever sold projects that contained 8,888 NFTs. The floor price of this collection was around $130 in ETH, which sold out just in an hour after the launch.
IRS-CI Special Agent-in-Charge Thomas Fattorusso said “NFTs represent a new era for financial investments, but the same rules apply to an investment in an NFT or a real estate development. You can’t solicit funds for a business opportunity, abandon that business and abscond with money investors provided you. Our team here at IRS-CI and our partners at HSI closely track cryptocurrency transactions in an effort to uncover alleged schemes like this one.”
Before the arrest, The Frosties creators had also scheduled another NFT series “Embers” for March. The new series was about to raise $50,000 in charity donations and a community-controlled wallet with 25% of the funds accumulated from the mint. The Red Cross also confirmed the donations. But luckily, before they could execute another rug pull, the enforcement arrested them.
HSI Acting Special Agent-in-Charge Ricky J. Patel said that “The arrested thieves allegedly hid behind online identities where they promised investors rewards, giveaways, and exclusive opportunities before implementing their ‘rug pull’ scheme leaving investors with empty pockets and no legitimate investment.”
Investigators succeeded to trace perpetrators after matching Nguyen and Llacuna Discord account data with associated accounts on the Coinbase cryptocurrency exchange. This helped the enforcement to get crucial details about scammers including Nguyen’s IP address and Llacuna’s email address and phone number.
The Coinbase crypto exchange helped investigators to provide data linked to their Banks, which were linked to Citibank credit card and government ID. These details were sufficient to catch scammers.
Apart from this, the enforcement also traced the transaction that Nguyen and Llacuna made to scatter and hide Frosties funds.
In the emerging digital asset space rug pulls are becoming obstacles to winning the trust of investors. Recently, blockchain analyst firm Peckshield warned investors about allegedly Metaswap rug pull as $600K worth of BNB tokens were stolen.
