Two Defendants Charged with Non-Functional Token (“NFT”) Fraud and Money Laundering | USAO-SDNY

Damian Williams, United States Attorney for the Southern District of New York, Thomas Fattorusso, Special Agent in Charge of the New York Field Office of the Internal Revenue Service, Criminal Investigation (“IRS-CI”), Ricky J. Patel, Acting Special Agent in Charge for New York Field Office of the Department of Homeland Security (“HSI”) and Daniel B. Brubaker, Inspector-in-Charge of the New York Office of the US Postal Inspection Service (“USPIS”), announced that ETHAN NGUYEN, a/k/a “Frostie ,” a/k/a “Jakefiftyeight,” a/k/a “Jobo,” a/k/a “Joboethan,” a/k/a “ Meltfrost,” and ANDRE LLACUNA, a/k/a “heyandre, ” was charged in a criminal complaint with conspiracy to commit fraud and conspiracy to commit money laundering in connection with a million-dollar scheme to defraud buyers of NFTs advertised as “Frost.” Instead of offering the benefits that was announced to Frostie’s NFT buyers, NGUYEN and LLACUNA transferred the cryptocurrency proceeds from the scheme to various cryptocurrency wallets under their control. Prior to their arrests in Los Angeles, California, NGUYEN and LLACUNA were preparing to launch the sale of a second set of NFTs advertised as “Embers,” which were expected to generate approximately $1.5 million in cryptocurrency revenue.

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

IRS-CI Special Agent-in-Charge Thomas Fattorusso said, “NFTs represent a new era of financial investment, but the same rules apply to an investment in an NFT or a real estate development. You can’t ask for funds for a business opportunity, leave it business and absconding with money given to you by investors. Our team here at IRS-CI and our partners at HSI closely track cryptocurrency transactions in an effort to uncover alleged schemes like this one.”

HSI Acting Special Agent Ricky J. Patel said, “The trending market and demand for NFT investments has not only attracted the attention of genuine artists but also scammers. The arrested thieves allegedly hid behind online identities where they promised investors rewards, handouts and exclusive opportunities before they implemented 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 scammers while they were preparing to launch the sale of yet another NFT project that would likely have defrauded countless others.”

USPIS Inspector Daniel B. Brubaker said: “The growth and popularity of various cryptocurrencies has changed the landscape of buying and selling investments, creating great opportunities for new fraud schemes. Today’s arrests involved Non-Fungible Tokens (“NFTs”), opening the door to alternative investment options and significant risk. These assets may seem like a good deal or a way to become wealthy, but in many cases, like in this situation, it only leads to the loss of your money. Postal inspectors will pursue fraudsters with our law enforcement partners in all consumer markets and advise consumers to follow new investment trends with diligence and scepticism.”

As alleged in the complaint[1]:

Since in or around January 2022, IRS-CI and HSI have been investigating an NFT fraud scheme based on reports from purchasers of Frosties utility NFTs[2] that they had been defrauded in what is colloquially referred to as a “rug pull”. As the term suggests, a “rug pull” refers to a scenario where the creator of an NFT and/or gaming project solicits investment and then abruptly abandons a project and fraudulently keeps the project investors’ funds. According to the official Frosties website, Frosties buyers will be eligible for holder rewards such as, blue, giveaways, early access to a metaverse game, and exclusive coin cards for upcoming Frosties seasons. In reality, on or around January 9, 2022, NGUYEN and LLACUNA, whose legal identities were disguised for Frosties NFT buyers, abruptly left the Frosties NFT project within hours of selling out Frosties NFTs, deactivating the Frosties website and transferred approximately $1.1 million. in cryptocurrency income from the scheme to various cryptocurrency wallets under their control in several transactions designed to hide the original source of funds. A screenshot taken from the Frosties website is shown below:

Prior to their arrests, NGUYEN and LLACUNA advertised a second NFT project under the name “Embers”, which, based on similarities to the Frosties NFT project, is believed to be another fraud scheme expected to launch on or around March 26, 2022 .A screenshot taken from the Embers website is shown below:

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ETHAN VINH NGUYEN, 20, and ANDRE MARCUS QUIDDAOEN LLACUNA, 20, are each charged with one count of wire fraud, in violation of 18 USC § 1349, which carries a maximum penalty of 20 years in prison; and one count of conspiracy to commit money laundering, in violation of 18 USC § 1956(h), which carries a maximum penalty of 20 years in prison.

The maximum potential sentences described above are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendants will be determined by the assigned judge.

Mr. Williams praised the outstanding investigative work of HSI, IRS-CI and USPIS.

The case is being processed by the office’s unit for complex fraud and cybercrime. Assistant United States Attorney Danielle M. Kudla is in charge of the prosecution.

If you believe you have been a victim of this crime, please contact HSI Special Agent Paul Nugent at [email protected].