US government prosecutors have charged two men with fraud and money laundering over a cryptocurrency “rug pull” scheme. Ethan Nguyen and Andre Llacuna allegedly earned around $1.1 million by selling non-fungible tokens (or NFTs) based on cartoon-like characters called “Frosties.”
After selling the NFTs, they shut down the project and transferred its funds to a series of separate crypto wallets, leaving Frosties owners bereft of promised rewards.
Rug pulls are a lucrative scam in which a crypto developer promotes a new project—usually a new token—to investors, and then disappears with tens of millions or even hundreds of millions of dollars. This particular type of fraud accounted for $2.8 billion in lost money for victims, or 37% of all cryptocurrency scam revenue in 2021, according to Chainalysis, a blockchain analysis company.
Many crypto projects are created by people who only disclose their pseudonyms. Complete anonymity means complete unaccountability when it comes to unvetted crypto projects.
“Rug pulls are often, but not always, orchestrated by anonymous founders promising fast, easy gains in return for blue-chip cryptocurrencies,” Richter told Fortune.
“The blockchain space is one that respects anonymity, yet checking if the orchestrator has a proven track record as a good-actor can help avoid potential pitfalls. Anonymity is often a scammer’s shield for easy rug-pulls. Check for their ‘proof-of-history.’”
The complaint includes an apparent apology and confession from Nguyen to the moderator of the Frosties community Discord server. “I know this is shocking, but this project is coming to an end. I never intended to keep the project going, and I don’t have a plan for anything in the future,” it reads.
The message goes on to say Nguyen sent the moderator some Ethereum “for your troubles” and recommends deleting their Discord account. “I want you to know that I do care. I appreciate you, even if you don’t appreciate me,” it concludes.
The Frosties operators apparently remained confident enough to plan a follow-up series called “Embers” that was supposed to launch later in March.
Embers’ roadmap included a $50,000 charity donation and a community-controlled wallet that would hold a quarter of the initial sales funds — and while the Red Cross confirmed receiving the donation, the latter promise appears far more dubious.
But among other details, investigators matched Nguyen and Llacuna’s Discord account data (including Nguyen’s IP address and Llacuna’s email address and phone number) with corresponding accounts on the Coinbase cryptocurrency exchange.
The Coinbase accounts were linked with a Citibank credit card and government ID that let law enforcement track the pair down. Investigators also traced a series of transfers through which Nguyen and Llacuna allegedly tried to obscure where they were sending the Frosties funds, leading to the money laundering accusations.
