US authorities have charged two men named Ethan Nguyen and Andre Llacuna with fraud and money laundering through a 'rug pull' scheme. Rug pull is a fraudulent term in crypto, where a developer closes his project suddenly after raising funds from investors.
Both are known to sell NFT cartoon character named Frosties. After selling out NFT for USD 1.1 million, the two closed the project and transferred the money to separate crypto wallets.
Project Frosties began investigations by the Internal Revenue Service, Criminal Investigation (IRS-CI) and Homeland Security Investigations (HCI) in January, shortly after receiving complaints about alleged fraud.
Frosties itself is a large-scale project. They sold 8,888 NFT which were priced at USD 130 each in Ethereum and sold out within an hour of launching.
But after being sold out two of the creators immediately ran away. Worse, the owners of NFT Frosties who try to resell their collections only get a few dollars.
Victims have also lost hope of getting the bonuses promised by the creators, such as avatars of their choice in 3D and the video game Frosties. Now the two creators have been detained in Los Angeles, California and face a maximum prison sentence of 20 years.
Nguyen apparently apologized to the Frosties community on Discord. He also sent some Ethereum to his moderators to apologize and advise them to delete the Discord account.
"I know it's shocking, but this project is coming to an end. I never intended to continue the project, and I don't have any plans for the future," Nguyen said, as quoted by The Verge, Friday (25/3/2022).
Even though the Frosties project has gone bankrupt, Nguyen and Llacuna seem to have not given up on launching the NFT project. Both are preparing to launch a new NFT project called Embers which is scheduled for release at the end of March.
Rug pull fraud schemes in the crypto world are increasingly being exposed as their popularity increases, but they are rarely investigated as criminal cases. According to Chainalysis data, the total loss from rug pull scams amounts to USD 2.8 billion in cryptocurrencies, or 37% of all crypto scams.