Nfts
US authorities charge three British nationals in connection with the Evolved Apes NFT fraud scheme
Three British nationals have been charged with conspiracy to commit wire fraud and money laundering for allegedly defrauding investors with a series of Evolved Apes NFTs (non-fungible tokens).
According to the indictment, released 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 a so-called “carpet pulling” scam. , a known fraudulent tactic in which developers advertise a digital offering, collect funds from buyers and then abandon the project while retaining the funds.
The trio (all aged 23) allegedly created and promoted the Evolved Apes NFTs, which featured approximately 10,000 digital images of cartoon apes, promising to use the funds raised to develop a video game based on the tokens, which, in turn, increase the value of assets. (Evolved Apes tokens have a similar aesthetic style and sensibility to the very 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 site and pocketing the proceeds (detailed at over $2 million in the deed). ‘accusation) via cryptocurrency transactions on their personal accounts. (As of this writing, 9,870 evolved apes are still listed on the NFT trading platform OpenSea.)
“Digital art may be new, but the old rules still apply; making false promises of 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 wire fraud, with each count carrying a maximum sentence 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 has also not been verified whether the individuals resided in the United States 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 arm of the law.
“For a while, many NFT projects presented themselves as raising capital for the creation of another business, such as developing a game,” says Jon Sharples, senior associate at Howard Kennedy. “While this often raises quite technical questions in securities law, it serves as a reminder that good old fraud law can apply when promises have been made without the intention of keeping them.” Kennedy adds that the use of terminology such as “rug pull” in official communication like this also speaks to the growing interest and familiarity of authorities with developments in the cryptocurrency and NFT spaces.
This is not the first controversial case to make headlines. The figures released by security app De.Fi Last year, it was suggested that cryptocurrency users lost more than $1.95 billion to rug pulls in 2023. This is also not the first case of criminal charges being brought by US authorities over an alleged rug pull, with other examples including two men indicted over a comparable scheme in 2022, who allegedly won around $1.1 million from a series of tokens known as Frosties.
“The very nature of NFTs means that they do not respect traditional boundaries and so-called 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, properly investigate and understand modern technologies…[which] it comes down to a question of resources and appropriate policies.”