The DOJ has charged 2 men over the $1.1 million Frosties NFT 'rug pull' – and alleged they were preparing to pull off another scam
US prosecutors have charged two men in connection with an alleged $1.1 million Frosties NFT "rug pull" scheme.
The pair, charged with fraud and money laundering, were preparing a second "Embers" scam, the DOJ alleged Thursday.
A rug pull is a type of scam in which creators quickly cash out their gains after launching a crypto project.
US prosecutors have charged two men over an alleged $1.1 million NFT "rug pull" scam, saying the "Frosties" collection creators were preparing to carry out a second fraud scheme.
Ethan Nguyen and Andre Llacuna have been arrested and charged in connection with a million-dollar scheme to defraud purchasers of the NFTs, the Department of Justice said in a statement Thursday.
They each face one count of wire fraud and another of conspiracy to commit money laundering, which carry maximum sentences of 20 years in prison, it said.
"The trending market and demand for NFT investments has not only drawn the attention of real artists, but scam artists as well," Ricky J. Patel, a Homeland Security agent, was cited as saying in the DOJ statement.
In January, the developers of Frosties NFTs, or non-fungible tokens, disappeared less than an hour after the cartoon ice-cream collection dropped. All 8,888 tokens were bought by investors, who are estimated to have put up more than $1 million.
The incident is widely believed to be a rug pull — a type of scam in which creators quickly cash out after launching what appears to be a legitimate crypto project.
Nguyen — also known as "Frostie" or "Meltfrost" — and Llacuna promised rewards to Frosties buyers, but when they sold out, they pulled the rug from under the victims, the DOJ said.
They almost immediately shut down the NFTs' website and transferred $1.1 million in proceeds to multiple crypto wallets they controlled, it alleged.
The DOJ said investing in NFTs opens the door to substantial risk.
"These assets may seem like a good deal or a way to become wealthy, but in many cases, as in this situation, only lead to the loss of your money," Daniel B. Brubaker, an inspector in charge for the US Postal Inspection Service, said, according to the DOJ statement.
Before their arrest, Nguyen and Llacuna are believed to have been preparing a second NFT scam expected to pull in $1.5 million in crypto proceeds, the DOJ said. They were advertising a collection called "Embers", expected to launch Saturday, with similarities to the Frosties set.
NFTs — digital representations of artwork, sports cards, or other collectibles tied to a blockchain — have surged in popularity in the past year as investors from Wall Street and Hollywood get onboard.
As the NFT market continues to boom, scams are also on the rise. Last year, the estimated value of rug pull scams totaled $2.8 billion, according to Chainalysis.
"NFTs have been around for several years, but recently mainstream interest has skyrocketed. Where there is money to be made, fraudsters will look for ways to steal it," US attorney Williams said.
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