NFT-related scams have been on the rise lately; finally, authorities in the US arrested two over an alleged rug pull involving NFT assets.
NFT Projects: Good or bad?
More than once, we’ve witnessed NFTs being used as a tool to scam, steal, or launder money. Each time an NFT scam gets uncovered, it does great harm to the NFT and Web3 community as it gives naysayers and Web3 skeptics another reason to attack the movement.
Some projects are created with good intentions but fail or do not live up to expectations after a while. On the other hand, we have NFT projects created to defraud investors, collaborators, and everyone in between.
What if we told you that one of the most successful and highly sought-after NFT projects was run as a money grab to defraud the public. You may be familiar with the “Frosties” NFT project; this project sold out within an hour of launch; this project was run as a scam by the people behind it, and shortly after selling out, the founders shuttered the project.
A “rug pull” in the NFT space is when a project is launched and advertised to attract investors; as soon as investors sign up and assets change hands, the team either shuts the project down or disappears. If you’re on the receiving end, it feels like someone convinced you to stand on a rug, then pull it as soon as you’re on it.
Authorities Charge “Frosties” Founders with NFT scam
US government prosecutors charged Ethan Nguyen and Andre Llacuna with fraud and money laundering relating to its rug pull incident. The pair allegedly earned $1.1 million through the sale of NFT tokens for their Frosties project – Frosties are cartoon-like characters.
Frosties was by no means a failed project; it was successful and attracted a fair bit of attention from almost everyone within the NFT space. The Frosties project featured 8,888 NFTs, and at the time of the project sale, it was priced at $130 in Ethereum, which means that the project made over $1.15 million in revenue.
The team behind the project abandoned it almost immediately; when holders realized this, they filed complaints with relevant authorities. In January, the Internal Revenue Service Criminal Investigation (IRS-CI) and the Homeland Security Investigations (HIS) launched investigations into Frosties.
Holders that tried to resell their Frosties only got a minuscule amount, and holders had to give up hope on the promised NFT -related rewards.
Overconfidence of Frosties Founders
By the look of things, it seems the creators behind the Frosties project were confident enough in their ability to get away without any punishments that they were close to launching a follow-up project. The Frosties team planned to launch a follow-up collection known as “Embers,” If things had gone according to plan, the project would have launched later in March 2022.