NFT Developers Found Guilty Of Fraud And Money Laundering In $400,000 Rug Pull Scheme

According to Decrypt, two NFT developers have been implicated in a fraudulent scheme involving the sale of three NFT collections on Solana. The collections, named “Undead Apes,” “Undead Lady Apes,” and “Undead Tombstone,” were sold in 2022, generating nearly $400,000. The developers, 21-year-old Berman Jerry Nowlin Jr. and 25-year-old Devin Alan Rhoden, were found guilty of conspiracy to commit wire fraud and money laundering. Nowlin was found guilty and faces up to five years in federal prison, with sentencing scheduled for January 2025. Rhoden pleaded guilty and will be sentenced later this month. The Department of Justice (DOJ) reported that the success of these NFT projects was driven by false statements about future partnerships, reinvestment of capital, and utility for holders. In April 2022, the developers abruptly halted the minting of “Undead Tombstone” NFTs and deleted all communication channels, effectively abandoning the project and leaving investors with worthless assets. The DOJ defines this as a rug pull, a type of cryptocurrency investment fraud where developers abandon a project and take investor funds. The developers used Tornado Cash, a now-banned crypto mixer in the U.S., to obscure the movement of funds. They also employed a technique called “chain-hopping” to move funds between Solana and Ethereum, making it difficult to trace the transactions. Nowlin eventually converted the cryptocurrency to U.S. dollars and transferred the funds to his bank account. The case highlights the risks associated with investing in cryptocurrency projects and the importance of due diligence.