DOJ Brings Charges in First NFT Fraud Case

The U.S. Department of Justice (the “DOJ’) has charged two individuals with a conspiracy to defraud investors in non-fungible tokens (“NFTs”) in which they abandoned the scheme and made off with the money invested (a “rug-pull”) shortly after it was invested. NFTs are digital assets recorded on a blockchain, a decentralized digital ledger. The advertised scheme involved NFTs called “Frosties,” cartoon characters, that would give benefits such as “staking” (returns from investing cryptocurrency), “metaverse” (the ability to interact with a computer-generated environment and other users, “breeding” (the creation of new tokens) and eligibility for rewards such as giveaways. The “rug-pull” alleged is a classic fraud, and this will likely not be the last time this is alleged.