NFTs
US authorities charge three UK citizens in Evolved Apes NFT fraud scheme
Three UK citizens have been charged with conspiracy to commit wire fraud and money laundering for allegedly defrauding investors with a series of NFTs (non-fungible tokens) from Evolved Apes.
According to the indictment, published late last week by the United States Attorney for the Southern District of New York, the defendants (Mohamed-Amin Atcha, Mohamed Rilaz Waleedh and Daood Hassan) orchestrated the so-called “rug pulling” scam in 2021, a known fraudulent tactic in which developers advertise a digital offering, collect funds from buyers, and then abandon the project, keeping the funds.
The trio (all aged 23) allegedly created and promoted the Evolved Apes NFTs, which featured around 10,000 digital images of cartoon monkeys, promising to use the proceeds raised to develop a video game based on the tokens, which would, in turn, increase the value of assets. (Evolved Apes tokens have a similar aesthetic style and sensibility to the extremely popular Bored Ape Yacht Club NFT Series.) Ultimately, the digital game was not completed and the defendants are accused of shutting down the Evolved Apes website and pocketing the profits (detailed at over $2 million in the indictment) through cryptocurrency transactions on their accounts personal. (At the time of this writing, 9,870 evolved apes were still listed on the OpenSea NFT trading platform.)
“Digital art may be new, but old rules still apply; Making false promises for money is illegal,” U.S. Attorney Damian Williams said in a statement. Each individual is charged with one count of conspiracy to commit wire fraud and one count of conspiracy to commit money fraud, with each count carrying a maximum penalty of 20 years in prison. Attempts to contact the defendants or a legal representative were unsuccessful at the time of publication and it is unclear how they will plead. It was also not verified whether the individuals were U.S. residents at the time the charges were filed.
The case, which is being handled by the Illicit Finance and Money Laundering Unit of the U.S. Attorney’s Office for the Southern District of New York, demonstrates growing efforts to bring crypto cases into the mainstream of the law.
“For a while, many NFT projects presented themselves as raising capital to build another business, like developing a game,” says Jon Sharples, senior associate at Howard Kennedy. “While this often involves quite technical securities law issues, this is a reminder that the old law of fraud can apply when promises have been made with no intention of keeping them.” Kennedy adds that the use of terminology such as “rug pulling” in an official communication like this also revealed authorities’ growing interest and familiarity with developments in the cryptocurrency and NFT spaces.
This is not the first case of rug pulling to make headlines. Figures launched by security app De.Fi Last year suggested that cryptocurrency users will lose more than $1.95 billion due to rug-pulling by 2023. Nor is it the first case of criminal charges brought by US authorities for alleged rug-pulling, with other examples including two men charged in a comparable scheme in 2022, which is believed to have raised around $1.1 million through a series of tokens known as Frosties.
“The very nature of NFTs means they do not respect traditional boundaries and therefore alleged NFT frauds will inevitably cross many jurisdictions in terms of technology, architects [and] investors,” says Nicola Finnerty, partner at Kingsley Napley. She adds that increased regulation and enforcement will require “authorities to be equipped to detect, adequately investigate, and understand modern technologies—[which] It’s about appropriate resources and policies.”