As digital assets like cryptocurrency and non-fungible tokens (NFTs) become more popular, so do thefts and fraud involving them. The federal government is fast becoming able to investigate this illegal activity and catch the perpetrators, despite the largely anonymous nature of the transactions. The U.S. Department of Justice (DOJ) even has a national cryptocurrency enforcement team.
Just this month, two 20-year-old men were arrested and charged with what’s known as a “rug pull” that allegedly cost NFT buyers over $1 million. This is reportedly the first criminal case of its kind. With “rug pull” schemes, once the available NFTs are sold, those selling them “pull the rug out” on buyers and take the crypto for themselves.
The two men, who were found by authorities in Los Angeles, are being prosecuted by the Southern District of New York. They’ve been charged with conspiracy to commit money laundering and wire fraud.
How the scheme allegedly worked
According to authorities, the scheme involved NFTs called “Frosties” that looked like snowmen. Allegedly, those who purchased them were promised valuable rewards and prizes as well as early access to a game in the metaverse.
However, authorities say that the two men instead transferred the cryptocurrency they’d received for the NFTs into their own cryptocurrency wallets. According to prosecutors, the men were planning a second sale involving different NFTs when authorities arrested them.
The NFT market, which was a whopping $25 billion last year, involves everything from artwork and collectibles to game characters and virtual land. As with many things, the promise of high returns can be a scam.
Because of the anonymity involved in digital transactions and the lack of understanding of how it works, it’s easy not just to become the victim of a scam but to unknowingly get caught up with the perpetrators of a scam. If you’re being investigated or have already been arrested for a fraud crime involving NFTs, it’s essential that you have legal guidance to protect your rights.