U.S. Justice Dept. Charges Frosties NFT Creators Over "Rug Pull" Scheme
The young adults face up to a 20-year sentence.
The U.S. Justice Department has arrested the 20-year-old creators of the Frosties NFT project in LA after they suddenly shut down the Discord and disappeared with over $1.1 million USD worth of Ethereum.
This is the first known action from the Department of Justice regarding “rug pulls,” in which fraudsters generate excitement over a project, promising certain benefits according to a roadmap, but end up running away with the money soon after funds are invested. According to blockchain analysis firm Chainalysis, rug pulls accounted for 37% of crypto scam revenues in 2021 totaling $2.8 billion USD, up from just 1% in 2020.
“NFTs represent a new era for financial investments, but the same rules apply to an investment in an NFT or a real estate development,” Special Agent-in-Charge Thomas Fattorusso said in a statement. “You can’t solicit funds for a business opportunity, abandon that business and abscond with money investors provided you. 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”
The Frosties creators were reportedly preparing to launch another project titled “Embers” before they were arrested and charged for conspiracy to commit wire fraud and money laundering, which both carry sentences of up to 20 years.
Elsewhere, Vitalik Buterin covers first-ever NFT issue of TIME Magazine.
