On March 24, 2022, the U.S Attorney’s Office for the Southern District of New York charged two individuals for their alleged participation in a scheme to defraud purchasers of non-fungible tokens (or “NFTs”) known as “Frosties” out of over $1 million. The two-count complaint charges Ethan Nguyen (aka “Frostie”) and Andre Llacuna (aka “heyandre”) with conspiracy to commit wire fraud in violation of 18 U.S.C. § 1349 and conspiracy to commit money laundering in violation of 18 U.S.C. § 1956. Each charge carries a maximum sentence of 20 years in prison.
The Defendants marketed “Frosties” as the entry point to a broader online community consisting of games, reward programs, and other benefits. In January 2022, their “Frosties” pre-sale raised approximately $1.1 million.
In a so-called “rug pull,” Frostie and heyandre transferred the funds raised through the pre-sale to a series of separate cryptocurrency wallets, eliminated Frosties’ online presence, and took down its website. The transaction, which was publicly recorded and viewable on the blockchain, triggered investors to sell Frosties at a considerable discount. Frostie and heyandre then allegedly proceeded to move the funds through a series of transactions intended to obfuscate the source and increase anonymity. The charges came as the Defendants were preparing for the March 26 pre-sale of their next NFT project, “Embers,” which law enforcement alleges would likely have followed the same course as “Frosties.”
In a public statement announcing the arrests, the DOJ explained how the emerging NFT market is a risk-laden environment that has attracted the attention of scam artists. Representatives from each of the federal agencies that participated in the investigation cautioned the public and put other potential fraudsters on notice of the government’s watchful eye towards cryptocurrency malfeasance.
This investigation comes on the heels of the FBI’s announcement last month of the Virtual Asset Exploitation Unit, a special task force dedicated to blockchain analysis and virtual asset seizure. The prosecution of the Defendants in this matter continues aggressive efforts by federal agencies to reign in bad actors participating in the cryptocurrency/digital assets/blockchain space.
Copyright ©2022 Nelson Mullins Riley & Scarborough LLPNational Law Review, Volume XII, Number 91