The Department of Justice said Thursday that it has charged two individuals with conspiracy to commit wire fraud and conspiracy to commit money laundering related to a non-fungible token scam known as Frosties.
Per the DOJ, Ethan Nguyen and Andre Llacuna allegedly absconded with the money raised during the NFT sale rather than continue to develop the project. The case is among the first of its kind as it relates to NFTs.
Details of the Frosties scheme were featured in a February report by Protocol, which played out in one of the many Discord servers that are home to NFT communities today.
As the department noted:
"Since in or about January 2022, IRS-CI and HSI have been investigating a NFT fraud scheme based on reports from purchasers of Frosties utility NFTs that they had been defrauded in what is colloquially referred to as a “rug pull.” As the term suggests, a “rug pull” refers to a scenario where the creator of an NFT and/or gaming project solicits investments and then abruptly abandons a project and fraudulently retains the project investors’ funds.
The DOJ further alleged that "NGUYEN and LLACUNA, whose legal identities were disguised to Frosties NFT purchasers, abruptly abandoned the Frosties NFT project within hours after selling out of Frosties NFTs, deactivated the Frosties website, and transferred approximately $1.1 million in cryptocurrency proceeds from the scheme to various cryptocurrency wallets under their control in multiple transactions designed to obfuscate the original source of funds."
Per the release, "prior to their arrests in Los Angeles, California, NGUYEN and LLACUNA were preparing to launch the sale of a second set of NFTs advertised as “Embers,” which was anticipated to generate approximately $1.5 million in cryptocurrency proceeds."
The two defendants potentially face decades in prison in connection with the charges.