Two US men arrested for $1.5 million Frosties NFT 'rug pull' scheme

The NFTs advertised as "Frosties" depicted snowman-like characters. SCREENGRAB: OPENSEA.IO

MANHATTAN (REUTERS) - Two men were arrested and charged with scamming buyers of non-fungible tokens (NFTs) worth US$1.1 million (S$1.49 million), authorities said on Thursday (March 24), in what appeared to be the first United States federal criminal case involving the class of digital assets whose popularity exploded last year.

US Attorney Damian Williams in Manhattan said in a statement that Ethan Vinh Nguyen, 20, and Andre Marcus Quiddaoen Llacuna, 20, had been arrested in Los Angeles, California on Thursday.

They face charges of wire fraud and conspiracy to commit money laundering in connection with a million-dollar scheme to defraud purchasers of NFTs advertised as "Frosties", which depicted snowman-like characters.

Frosties purchasers were told they would be eligible for holder rewards, such as giveaways and early access to a metaverse game.

But on or around Jan 9 this year, Nguyen and Llacuna abandoned the project and transferred US$1.1 million in cryptocurrency proceeds from the scheme to various cryptocurrency wallets under their control, prosecutors said.

Such schemes are known as a "rug pull". An attorney for Nguyen did not immediately return a request for comment. Attorney information for Llacuna was not immediately available.

The NFT market, made up of unique digital assets that can represent a collectible image, gaming character, or a plot of land in a virtual world, reached some US$25 billion in 2021.

"Where there is money to be made, fraudsters will look for ways to steal it," Mr Williams said in a statement.

Prosecutors said Nguyen and Llacuna had launched the Frosties project using pseudonyms, and had been planning a second sale of NFTs called "Embers" before they were arrested.

The US Justice Department recently signalled an increased focus on crimes related to digital assets by forming a national cryptocurrency enforcement team.

Join ST's Telegram channel and get the latest breaking news delivered to you.