Morgan Chittum

<div id="highlights-block_623e023fd89df" class="highlights">
 <ul>
 <li>Ethan Vinh Nguyen and Andre Marcus Quiddaoen Llacuna were charged with conspiracy to commit wire fraud and conspiracy to commit money laundering</li>
 <li>The duo could face up to 20 years in prison, according to prosecutors</li>
 </ul>
 
</div>



The 20-year-old creators behind an alleged $1.1 million NFT scam were arrested on Thursday — just days before launching a further potential fraud scheme.&nbsp;



Ethan Vinh Nguyen and Andre Marcus Quiddaoen Llacuna were charged with conspiracy to commit wire fraud and conspiracy to commit money laundering. The duo could face up to 20 years in prison, <a href="https://www.justice.gov/usao-sdny/pr/two-defendants-charged-non-fungible-token-nft-fraud-and-money-laundering-scheme-0" target="_blank" rel="noreferrer noopener">prosecutors said</a>.



In January, Blockworks first <a href="https://cms.blockworks.co/nft-creators-stole-1-3m-from-investors-then-vanished-sources-say/" target="_blank" rel="noreferrer noopener">reported</a> operators of the non-fungible token (NFT) collection called <a href="https://opensea.io/collection/frosties-nft?tab=activity" target="_blank" rel="noreferrer noopener">Frosties</a> funneled funds from the project after investors poured over $1 million into the cartoon ice cream digital collectibles. The collection was rugged, a crypto-native term for when a project’s developers jump ship after siphoning investor funds.  



Marcellus King, a first-time collector who lost about $3,000 in ether from the rug pull, told Blockworks that he is “glad that justice was served to these scammers.”



“I&#8217;m also glad that others have been put on notice in this Wild West space that the authorities are watching,” King said.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“This will help bring more honesty and accountability to the NFT market.”</blockquote>



On Jan. 9, 8,888 Frostie NFTs were snatched up on marketplace OpenSea creators soon after shutting down its Discord and Twitter. Project founders collected stolen funds and left after making promises of premiums such as “staking metaverse [and] breeding functions,” as well as “[becoming] eligible for holder rewards,” according to the original website, which has since been taken down.



Controllers of the developer’s wallet address have transferred out most of the initial stolen funds, according to <a href="https://etherscan.io/address/0xab020f50404dcf45cdb2ff0fe90d3e67205b7a35" target="_blank" rel="noreferrer noopener">Etherscan data</a>. 



Per a criminal complaint, Nguyen confessed and apologized to a moderator of Frostie’s community Discord server — sending the mod some ether “for [their] troubles.”



“I know this is shocking, but this project is coming to an end. I never intended to keep the project going, and I don’t have a plan for anything in the future,” the message reads. “I want you to know that I do care. I appreciate you, even if you don’t appreciate me.”



<figure class="wp-block-image"><img decoding="async" src="https://lh4.googleusercontent.com/IlUNmj5DeC-sB_gtL-jeWuXPcIyap7iZu8Gee5V3YTj2QNY3CGia80aEbZAcEFkleYEJ3OY4-7sZCtUfuURfJVfdP-nT-_JeyPl9I_QgIQ_8khVeokwd8nwe57-UMSj5mOT58cNO" alt=""/><figcaption>A screenshot of a Discord conversation released as part of <a href="https://www.justice.gov/usao-sdny/press-release/file/1486816/download" target="_blank" rel="noreferrer noopener">the criminal complaint</a></figcaption></figure>



Defendants also had plans for a follow-up NFT collection, according to the complaint, after siphoning funds from their first project.&nbsp;



The project, dubbed “Embers,” was set to launch March 26 — two days after the duo’s arrest. The project was estimated to garner around $1.5 million in sales.&nbsp;



Ashley, a Frosties NFT holder, told Blockworks the arrest “was a surprise,” but that she “had always heard rumblings of [the project] getting investigated.”&nbsp;



“We hope this criminal case sets a precedent for anyone else who comes into the NFT space looking to scam an innocent community,” Ashley, who did not disclose her last name, said.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“It’s the first big crackdown in the NFT world, so scammers should take note.”</blockquote>



Rug pulls account for approximately 37% of all cryptocurrency scams — which in total fetched $2.8 billion last year, according to blockchain research firm <a href="https://blog.chainalysis.com/reports/2021-crypto-scam-revenues/" target="_blank" rel="noreferrer noopener">Chainalysis.</a>



“The trending market and demand for NFT investments has not only drawn the attention of real artists, but scam artists as well,” Ricky Patel, a special agent for Homeland Security Investigations, said in a <a href="https://www.justice.gov/usao-sdny/pr/two-defendants-charged-non-fungible-token-nft-fraud-and-money-laundering-scheme-0" target="_blank" rel="noreferrer noopener">statement.</a> “[The two left] investors with empty pockets and no legitimate investment.”



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



The Lightspeed newsletter is all things Solana, in your inbox, every day. <a href="https://blockworks.co/newsletter/lightspeed">Subscribe to daily Solana news</a> from Jack Kubinec and Jeff Albus.

Two 20-Year-Olds Charged in Alleged $1.1M NFT Scam, Defrauding Investors

<div id="highlights-block_61de179961a62" class="highlights">
 <ul>
 <li>”I have never felt that amount of anxiety in my life. [It was my] first NFT ever, and [I] got scammed,” one victim told Blockworks</li>
 <li>The majority of the stolen funds have since been transferred out of the creators’ original wallet address</li>
 </ul>
 
</div>



Creators of a non-fungible token (NFT) collection called <a href="https://opensea.io/collection/frosties-nft?tab=activity" target="_blank" rel="noreferrer noopener">Frosties</a> vanished after investors poured $1.3 million into the cartoon ice cream digital collectibles.&nbsp;



”I have never felt that amount of anxiety in my life,” a 25-year-old college student, who goes by Antique_Taco online, told Blockworks. “[It was my] first NFT ever, and [I] got scammed.”



Frosties may have been the first NFT “rug pull” of 2022 — when a project’s developers abandon it after siphoning investor funds and removing liquidity. Approximately $30 million was lost in such scams from Sept. to Oct. of last year alone, according to <a href="https://itsblockchain.com/nft-rug-pulls-30-million-dollar-loss/" target="_blank" rel="noreferrer noopener">ItsBlockchain.</a>



In the case of Frosties, the anonymous creators collected funds and left after investors had purchased all 8,888 NFTs on Jan. 9 via OpenSea, walking away with almost $1.3 million of ethereum in their <a href="https://etherscan.io/address/0xab020f50404dcf45cdb2ff0fe90d3e67205b7a35" target="_blank" rel="noreferrer noopener">wallet</a>.



The NFTs had an average floor price of 0.04 ether or $121 worth of ETH at the time. All 8,888 NFTs sold out roughly 43 minutes after the drop.&nbsp;



Shortly after, developers of the project shut down their Twitter, Discord and closed off all forms of communication. The developer’s wallet address was removed from the collection’s landing page on OpenSea. (The majority of the funds have since been transferred out from the original wallet, according to <a href="https://etherscan.io/address/0xab020f50404dcf45cdb2ff0fe90d3e67205b7a35" target="_blank" rel="noreferrer noopener">Etherscan</a>.)&nbsp;



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“I went to eat dinner and when I came back I saw that one Frostie was revealed on OpenSea,” Antique_Taco said in a direct message on Twitter.&nbsp; “I was really confused so I typed a message in the Discord about it and as soon as I hit send the Discord disappeared…My heart sank.”</blockquote>



Frostie collectors were promised premiums with the NFT purchase such as “staking, metaverse [and] breeding functions,” as well as “[becoming] eligible for holder rewards such as giveaways, airdrops, early access to the metaverse game and exclusive mint passes to the upcoming seasons,” according to the project’s website, which has since been taken down.



Marcellus King, another Frosties collector who lost about $3,000 in ether, told Blockworks that it was his first foray into digital collectibles. 



“I figured that this was going to be my first dive into the NFT market,” King said in a Twitter message. “I was skeptical, since I thought the idea of NFTs was just sort of overhyped and overpriced. So seeing [one] that had a thriving community with a lot of activity, a roadmap, [a] legitimate looking site, [an] OpenSea account and artwork, that was actually pretty damn great.” 



<h3 class="wp-block-heading">‘Unrugging the Frosties’</h3>



Original holders of the NFTs banded together via a new <a href="https://discord.com/channels/929914686772772905/929915934217478154" target="_blank" rel="noreferrer noopener">Discord</a> on Jan. 9, dedicated to “unrugging the Frosties.”&nbsp;



The group is working on a wrapped contract for the project, which would return stolen funds into the hands of their rightful NFT owners.



“I know everyone is trying to figure out what is going on,” one moderator, who goes by “catdadcapital.eth,” posted in the chat. “We are diligently working behind the scenes to get control of the project one way or another.”



However, the project’s future is still up in the air. Members of its Discord, which has amassed 1,452 members, are still voting on its governance model and roadmap.&nbsp;



“Even though [they] got scammed with the first phase of the project, they want to keep the project alive,” Mike Fasanello, the director of training and regulatory affairs at Blockchain Intelligence Group, told Blockworks in an interview. “A big passion is still there in this community, which is fantastic.”&nbsp;



Fasanello, who has been investigating the rug pull, found out about the potential scam when he came across victim <a href="https://www.reddit.com/r/opensea/comments/s04i9y/so_what_is_going_on_with_frosties_nft_floor_price/" target="_blank" rel="noreferrer noopener">complaints</a> while browsing an NFT subreddit. Fasanello’s team sent an analysis and graph of the stolen funds to Blockworks.



Fasanello began working with one moderator of the project’s new Discord on Jan. 11. Fasanello, who did not disclose the name of the moderator, said the two may file a report with law enforcement in the near future.&nbsp;



Once Fasanello identified himself in the chatroom, however, he was kicked out — leading him to believe there may be “foxes in the henhouse.”



“For somebody to have that sort of access is a red flag,” Fasanello said, adding that two admins have access to the smart contract that underlies the NFT project.



One moderator, who goes by “Shipper,” confirmed to Blockworks that Fasanello was no longer in the Discord and that two admins did <a href="https://github.com/WarAgainstRugs/WrappedFrosties" target="_blank" rel="noreferrer noopener">create a copy of the same smart contract</a>.



“The project itself, I do have a lot of hope for, as long as the current people in charge of the server, keep their promises, which nobody can be entirely sure of,” Shipper said in an interview with Blockworks.&nbsp;



“Having the loss was unfortunate, but if there is a chance that the project is revived, I&#8217;m all for it,” King, the Frosties collector, said.



This is a developing story.&nbsp;



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



The Lightspeed newsletter is all things Solana, in your inbox, every day. <a href="https://blockworks.co/newsletter/lightspeed">Subscribe to daily Solana news</a> from Jack Kubinec and Jeff Albus.