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United States v. Nguyen, 22-mj-02478 (S.D.N.Y. 2022) (Frosties)

Summary

On March 24, 2022 the DOJ announced it had arrested and charged two individuals in connection with the "Frosties" NFT rug pull. According to the DOJ, the two 20-year-olds, Ethan Nguyen and Andre Llacuna, had marketed Frosties with all kinds of extravagant promises about the future usefulness of the NFTs, to great success – the NFT mint sold out quickly in January 2022. Within hours of the mint finishing, however, Nguyen and Llacuna allegedly transferred the $1.1 million in sale proceeds to their personal wallets and shut down the Frosties website completely. They then started building another alleged rug pull called Embers which was set to launch two days before the duo was arrested.
Apparently enough people complained about this rug pull that the DOJ took it seriously and swiftly investigated, identified the individuals behind the online personas marketing Frosties, arrested them, and charged them.
The legal theory behind the charges is not anything novel; this conduct, the DOJ says, amounted to conspiracy to commit wire fraud and conspiracy to commit money laundering. It's a conspiracy because there were two people coordinating their efforts. It's wire fraud (18 U.S.C. § 1343) because, allegedly, Nguyen and Llacuna:
  • willfully and knowingly devised a scheme and artifice to defraud;
  • for the purpose of obtaining money and property by means of false and fraudulent pretenses, representations, and promises; and
  • used wire communication in interstate commerce for the purpose of executing the scheme to defraud.
And they committed money laundering (USC § 1956(a)(1)(A)(i)), allegedly, because they used the proceeds of their wire fraud to further commit wire fraud.
This all seems like a relatively straightforward application of wire fraud and money laundering. The case was groundbreaking, however, because it is the first instance of the DOJ taking swift action in the wake of an NFT "rug pull," bringing charges only two months after the alleged crime occurred.

Posture

The government's complaint has been filed and the defendants have negotiated the terms of pre-trial release. Of particular note is this restriction on their activity:
The parties will now engage in pre-trial discovery, and likely plea deal negotiations. If a plea deal is not reached, or the case is not dismissed for other reasons, the case will proceed to trial.

Docket

Full court docket is available through PACER, which is most easily accessed through Court Listener.
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