The U.S. Department of Justice has arrested two 20-year-olds over a nonfungible token fraud and money laundering scheme.

The two accused, Ethan Nguyen and Andre Llacua, are accused of selling NFTs called “Frosties” and then taking the money raised in what is known as a “rug pull scheme.” A rug pull scheme is where the creator of an NFT or gaming program solicits investments and then abruptly abandons the project and fraudulently retains the investors’ funds.

The pair raised $1.1 million in selling the NFTs, which are tradable digital representations of artwork and other items, then shut down the project without delivering Frosties owners promised rewards. Purchases were promised holder awards, including giveaways, early access to a metaverse game and exclusive mint passes to upcoming Frosties seasons.

Instead, on Jan. 9, the accused abandoned the Frosties NFT project within hours after selling out of Frosties NFTs. They deactivated the Frosties website, transferred the money raised to cryptocurrency wallets and attempted to obfuscate the original source of funds.

Before their arrest, Nguyen and Llacua were advertising a second NFT project under the name of “Embers.” The second NFT had similarities to the Frosties NFT and is believed to be another fraud scheme. Embers were expected to launch on March 26.

“NFTs represent a new era for financial investments, but the same rules apply to an investment in an NFT or a real estate development,” Thomas Fattorusso, a criminal investigation agent-in-charge for the Internet Revenue Service, said in a statement. “You can’t solicit funds for a business opportunity, abandon that business and abscond with money investors provided you.”

U.S. Attorney Damian Williams noted that “where there is money to be made, fraudsters will look for ways to steal it,” and he is entirely correct. The NFT market is looking much like the earlier days of cryptocurrency, with scammers trying to cash in on investors entering the market because of a fear of missing out.

The accused pair have each been charged with one count of committing wire fraud, which carries a maximum sentence of 20 years in prison, and one count of conspiracy to commit money laundering, which also carries a maximum sentence of 20 years in prison.

Image: Frosties