US Justice Dep’t charges “Frosties” creators over $1.1 million rug pull

TL;DR Breakdown

• Two men have been charged by the US Department of Justice with fraud and money laundering in connection with Frosties NFT rug pull.
• Before vanishing with the money, the 20 years old, allegedly sold NFTs to unsuspecting investors with a litany of promises.

Today, the United States Department of Justice announced the indictment of two men on charges of fraud and money laundering in connection with an NFT “rug pull” scheme. The defendants, 20-year-old Ethan Nguyen and Andrew Llacuna, are accused of defrauding investors out of over $1.1 million.

Frosties NFTs RugPull

According to the indictment, Ethan and Andrew ran an NFT project called Frosties, which they advertised as an investment opportunity with guaranteed returns. The defendants allegedly sold the NFTs to investors for Ethereum, promising that they would receive profits from the sale of the virtual assets, among others. However, instead of using the proceeds to purchase more NFTs, the defendants allegedly converted Ethereum into cash and transferred it to their accounts. They then vanished, leaving investors with worthless NFTs.

But as Protocol revealed, the developers abandoned it soon after. When buyers attempted to sell their NFTs, they received very little money and gave up any hope of earning additional funds, including 3D avatars and a Frosties video game. While some community members attempted to resurrect the Frosties as a stand-alone NFT lineup, others were able to take advantage of the confusion.

The creators of Frosties apparently felt confident enough to plan a sequel series, dubbed “Embers,” due to launch later in March. The Red Cross, for example, has said it received a $50,000 donation from “Embers,” with the organization’s roadmap including a community-controlled wallet to store a quarter of the proceeds of the initial sale — but while the charity confirmed receiving the donation, the latter promise appears far more difficult.

How US authorities tracked Frosties creators

Both men involved in Frosties rug pull were arrested in Los Angeles, California. The Department of Justice is seeking to recover the stolen funds and return them to the victims of the scheme. According to the criminal complaint, the Internal Revenue Service, Criminal Investigation (IRS-CI), and Homeland Security Investigations (HSI) began looking into Frosties soon after receiving reports of the fraud. Frosties was a buzzy project that sold out its 8,888 NFTs — valued at roughly $130 each in Ethereum — within an hour of the public launch.

Investigators also compared Discord account data (including Nguyen’s IP address and Llacuna’s email address and phone number) from the two suspects with Coinbase accounts. The Coinbase accounts were linked to a Citibank credit card and a government ID, allowing authorities to locate the pair. The investigation revealed that due to these activities, Nguyen and Llacuna attempted to hide where they were sending the Frosties funds, ultimately resulting in money laundering charges.

NFTs are prone to scammers

Crypto “rug pull” frauds are quite prevalent, but criminal prosecutions remain rare. An NFT project called Rare Bears, which recently debuted in the non-fungible token sector, was hacked earlier this year. A hacker was reported to have posted a link that appeared to be phishing, allowing him to steal about $800,000 from the discord channel. However, these Rug Pull cases go largely unreported, and the victims have little recourse. As a result, it’s difficult to track how much money has been lost to rug pulls. This is one of the first times that US authorities have taken action against an NFT project accused of fraud.