DOJ cracks down on 'rug pull', charges founder of Frosties NFT project

The U.S. Department of Justice (DOJ) has taken action against an NFT rug pull after the DOJ charged the founders of the Frosties project with fraud and money laundering.

The two founders are accused of deliberately concealing their identities, operating a rug pull in the Frosties community, and failing to realize the project’s roadmap and “utility,” which advertised rewards for NFT holders, giveaways, and access to a Metaverse game. opportunity and exclusive access to future minting of the project.

Ethan Nguyen and Andre Llacuna, 20, were arrested in Los Angeles and charged with one count of wire fraud and one count of "defrauding 'Frosties'," according to a March 24 news release from the Southern District of New York's Attorney's Office. NFT Buyer Million Dollar Scheme related to "conspiracy to money laundering".

The DOJ’s complaint alleges that they “abruptly abandoned” and shut down the project within hours of selling $1.1 million worth of NFTs, transferring the proceeds to “multiple cryptocurrency wallets under their control in an effort to obfuscate the funds.” original source".

"As the term implies, a 'rug pull' refers to an NFT and/or game project creator who secures investment and then abruptly abandons the project, defrauding project investors of their funds," the release said.

As part of the press release, IRS-CI Special Investigator Thomas Fattorusso warned that his team is keeping a close eye on cryptocurrencies and that while NFTs are a relatively new option for financial investing, "the rules For investments in NFTs or real estate development":

“You can’t raise money for a business opportunity, then walk away from the business and abscond with the money provided by investors. Our team at IRS-CI and our partners at HSI closely track cryptocurrency transactions in an effort to uncover such plan."

The DOJ also said that prior to the Los Angeles arrest, the pair were preparing to launch a sale of another NFT project called "Embers," which was expected to generate "approximately $1.5 million in cryptocurrency proceeds."

If they are found guilty, they could face lengthy prison terms, with each count carrying a maximum sentence of 20 years.

While several NFT projects appear to be evading the DOJ's attention in 2021, there has been speculation that the DOJ will increase its focus on NFTs this year through its National Cryptocurrency Enforcement Team (NCET), which was established last October.

In this case, the investigation was conducted by investigators from the IRS, the Criminal Investigation Service (IRS-CI), the Department of Homeland Security (HSI) New York Field Service, and the United States Postal Inspection Service (USPIS).

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