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Two Men in US Arrested for Committing USD 1.1 million NFT Fraud

Who says NFTs and Cryptocurrencies can't be based on the rule of law? As evidence, 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 (NFTs) based on cartoon-like characters called "Frosties".

After selling the NFT, they closed the project and transferred the funds to a series of separate crypto wallets. This makes the owner of the Frosties forfeit the promised reward.

According to the criminal complaint, the Internal Revenue Service, Criminal Investigation (IRS-CI), and Homeland Security Investigation (HSI) began investigating Frosties in January 2022, shortly after receiving reports of fraud.

Frosties itself is a buzzy 8,888 NFT project that is priced at ethereum which is equivalent to USD 130 (Rp 1.8 million). The NFT ran out within an hour of its public launch.

But the creators of Frosties were irresponsible and just disappeared. Thus, buyers only earn a few dollars when they try to resell their NFT. Buyers also forfeit future promised rewards, including 3D versions of their avatars and the video game Frosties.

Uniquely, the perpetrator made an apology and confession from Nguyen to the moderator of the Frosties community Discord server.

“I know it's shocking, but this project is coming to an end. I never intended to continue with this project, and I have no plans for anything in the future," he wrote.

The next message says Nguyen sent moderators some Ethereum and asked to delete their Discord account. “I want you to know that I care. I respect you, even if you don't respect me."

On the other hand, the operator Frosties is still confident enough to plan a follow-up series called "Embers" which is supposed to launch in March 2022.

Crypto fraud schemes are very common, but the cases are little known. For one thing, the team behind the NFT series often don't reveal their legal identities. In fact, the founder of the Bored Ape Yacht Club series, which has a very expensive price, still uses a pseudonym. Another reason is that the launch of the NFT series is a relatively new phenomenon and the legal status of NFTs is generally unclear.

However, a US Department of Justice release clearly says Frosties is a scam.

IRS-CI Special Agent Thomas Fattorusso once stated that NFTs represent a new era for financial investment, but the same rules apply to investments in NFTs or real estate development.

You can't just ask for funds for a business opportunity, leave the business and run away with the money investors give you.

Hopefully this incident will be a lesson for all of us to be more careful if we want to transact online.

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