NFT Fraud: Two Defendants Charged in Non-Fungible Token (“NFT”) Fraud and Money Laundering Scheme

frosties nft fraud

At the point of their arrest, the two were preparing to go on a Second $1 million NFT fraud scheme. Here’s the story in full.

In a joint announcement, four federal agencies in the United States, including the United States Attorney’s Office for the Southern District of New York; Special Agent in Charge of the New York Field Office of Internal Revenue Service, Criminal Investigation (IRS-CI); Acting Special Agent-in-Charge of the New York Field Office of Homeland Security (HSI); and Daniel B. Brubaker, Inspector-in-Charge of the Internal Revenue Service (IRS-CI); announced an investigation into alleged tax evasion and money laundering in New York (USPIS).

NGUYEN and LLACUNA moved the cryptocurrency income generated by the program to other cryptocurrency wallets under their control rather than providing the alleged benefits to Frosties NFT users, as stated in the program.

They were about to launch the sale of the second batch of NFTs, dubbed “Embers,” in Los Angeles, California, United States, when they were apprehended. They projected that the sale of Embers would generate around $1.5 million in bitcoin revenues.

US Attorney Damian Williams said: “NFTs have been around for several years, but recently mainstream interest has skyrocketed. Where there is money to be made, fraudsters will look for ways to steal it. As we allege, Mr Nguyen and Mr Llacuna promised investors the benefits of the Frosties NFTs, but when it sold out, they pulled the rug out from under the victims, almost immediately shutting down the website and transferring the money. Our job as prosecutors and law enforcement is to protect investors from swindlers looking for a payday.”

According to IRS-CI SAC Thomas Fattorusso, while Non-Fungible Tokens (NFTs) represent a new era in financial investments, the same laws apply to an investment in an NFT or a real estate development.

“You can’t raise capital for a business opportunity, then shut down the company and walk away with the money that investors put into your account. An alleged fraud such as this one is one that our employees here at IRS-CI and our HSI colleagues keep an eye out for on a consistent basis.”

 “The trending market and demand for NFT investments have not only drawn the attention of real artists but scam artists as well. The arrested thieves allegedly hid behind online identities where they promised investors rewards, giveaways, and exclusive opportunities before implementing their ‘rug pull’ scheme – leaving investors with empty pockets and no legitimate investment.

“HSI New York’s Dark Web & Cryptocurrency Task Force worked closely with our IRS-CI partners to identify and shut down these fraudsters as they prepared to launch the sale of yet another NFT project that would have likely scammed countless others,” stated Ricky J. Patel, Acting Special Agent-in-Charge of the Homeland Security Investigations, United States.

USPIS Inspector-in-Charge Daniel B. Brubaker also stated, “The rise and popularity of various cryptocurrencies have changed the landscape of buying and selling investments, leading to ample opportunities for new fraud schemes. Today’s arrests involved Non-Fungible Tokens (“NFTs”), opening the door to alternative investment options and substantial risk. These assets may seem like a good deal or a way to become wealthy, but in many cases, as in this situation, only lead to the loss of your money. Postal Inspectors will pursue fraudsters with our law enforcement partners in any consumer market and advise consumers to pursue emerging investment trends with diligence and scepticism.”

According to the Complaint, the following is claimed:

IRS-CI and HSI have been conducting an investigation into a “rug pull” NFT fraud scam since about January 2022, following complaints from Frosties utility NFT[2] purchasers who claimed they had been tricked. An NFT or game project developer engages in “rug pull” behavior when he or she solicits investors, abandons the project unexpectedly, and then fraudulently retains the funds raised from the investors. According to the Frosties official website, holders will receive a variety of privileges, including gifts, early access to the Metaverse game, and unique mint passes to the upcoming Frosties seasons. Frosties NFTs were sold out in a matter of hours on or around January 9, 2022, when NGUYEN and LLACUNA abruptly abandoned the Frosties NFT project, 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.

Based on the similarities between the Frosties NFT project and the Embers NFT project, it is believed that NGUYEN and LLACUNA were promoting another NFT project under the name “Embers” that was slated to begin around March 26, 2022. ETHAN VINH NGUYEN, twenty-year-old, and ANDRE MARCUS QUIDDAOEN LLACUNA, twenty-year-old, are each charged with one count of wire fraud under 18 USC 1349 of the United States Constitution, which carries a maximum sentence of 20 years in prison, and one count of conspiracy to commit money laundering under 18 USC 1956(h) of the United States Constitution, which carries a maximum sentence of 20 years in prison.

Should they be found guilty of this NFT fraud, the defendants could be sentenced to the highest penalty allowed by the United States Congress; however, this information is provided solely as a favour to the public. Mr Williams singled out HSI, IRS-CI, and USPIS as deserving of special recognition for the high quality of their work. Investigating the matter is the Complex Frauds and Cybercrime Unit of the United States Attorney General’s Office, which is in charge of the case. Danielle M. Kudla, an Assistant United States Attorney, is in charge of the prosecution.

Globally, everyone should be careful of the activities they do online. Links, emails, documents, and others should be confirmed to be authentic before opening. NFTs are still relatively new. And this is why scammers have found this new opportunity to be lucrative. Doing thorough research before investing is now a must to escape NFT frauds.