The US Department of Justice has now indicted two twenty-year-olds, founders of the NFT project ‘Frosties’, on charges of fraud and money laundering.
The two defendants launched the project in January 2022 and offered rewards and benefits to those who purchased NFTs. However, it became a classic case of ‘rug pull’ after the founders failed to deliver the advertised benefits and shut down the project hours after the mint.
According to reports, the founders Ethan Nguyen and Andre Llacuna generated $1.1 million from defrauded investors and transferred the funds to various cryptocurrency wallets owned by them. Prior to their arrests in Los Angeles, the two were planning to launch another NFT project “Embers” that would’ve yielded $1.5 million in cryptocurrencies.
IRS-CI Special Agent-in-Charge Thomas Fattorusso said in the press release:
“NFTs represent a new era for financial investments, but the same rules apply to an investment in an NFT or a real estate development. You can’t solicit funds for a business opportunity, abandon that business and abscond with money investors provided you.”
Rug Pulls are extremely common in the crypto industry, where creators of a certain project procure investments from unsuspecting investors and suddenly abandon the project while taking the funds with them.
Squid Game rug pull scheme is one of the latest examples, in which anonymous developers created the tokens based on the popular Netflix series ‘Squid Game’. Leveraging the series’ recent popularity, the fraud founders were able to cash in on more than $3 million from the ordeal.