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Two Charged in $1.1 Million NFT 'Rug and Pull' Scheme

"Where there is money to be made, fraudsters will look for ways to steal it," says U.S. Attorney Damian Williams.

With popular NFTs selling within minutes for hundreds of thousands of dollars, the potential for scams is also high.

As hopeful buyers move fast to score a deal, fraudsters can take advantage of that frenzy to try to sell fakes, mislead buyers or, in some cases, outright hack and steal NFTs. 

An acronym for nonfungible token, NFTs are a way of asserting ownership over a piece of online content like a photo or recording. 

While some are tied to celebrities or historical events, many are images that do not mean much on their own and skyrocket in value due to interest from investors (and, as a result, scammers).

That is what happened last month when hackers pretended to come from the OpenSea platform to get access to users' NFTs only to steal them and resell them for ethereum worth $1.7 million.

What's The Scam This Time?

On Thursday, the Southern District of New York announced that two men have been charged in connection to a "rug and pull scheme" that defrauded NFT owners of just over $1.1 million.

Ethan Vinh Nguyen, 20, and Andre Marcus Quiddaoen Llacuna, 20, have been arrested and charged with wire fraud and conspiracy to commit money laundering. 

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The men allegedly created NFTs that look like snowmen named "Frosties" and promised potential buyers everything from large returns to early access to the metaverse.

A popular scheme in which scammers promise skyrocketing returns only to take the funds and abandon the project, the rug and pull has been particularly common among those pushing new cryptocurrency tokens.

These recent arrests are the first such U.S. federal criminal case with NFTs.

After receiving funds from interested investors, Nguyen and Llacuna allegedly gave up on the project after transferring $1.1 million in proceeds to cryptocurrency wallets they controlled.

"Mr. Nguyen and Mr. Llacuna promised investors the benefits of the Frosties NFTs, but when it sold out, they pulled the rug out from under the victims, almost immediately shutting down the website and transferring the money," U.S. Attorney Damian Williams said in a statement.

Watch Out For Such Scams

With the NFT market making up around $25 billion in 2021, many scammers see ample opportunity to tap into people's desire to make a profit. 

While we may be slowly exiting from this craze — Google Trends data shows that searches for "NFT" were down 68% since the start of 2022 — authorities are warning about the potential for scams from those trying to lure in buyers by promising great returns.

"NFTs have been around for several years, but recently mainstream interest has skyrocketed," Williams said. "Where there is money to be made, fraudsters will look for ways to steal it."