Creator of Mutant Ape ripoff NFTs pleads guilty to $3M fraud scheme

November 15, 2023 Coin Telegraph

Creator of Mutant Ape ripoff NFTs pleads guilty to M fraud scheme

The French developer of the Mutant Ape Planet NFT collection faces up to five years in prison after pleading guilty to wire fraud charges.

The creator of the Mutant Ape Planet nonfungible token (NFT) collection — a knock-off of Yuga Labs’ Mutant Ape Yacht Club project — has pleaded guilty to conspiracy to commit wire fraud in a New York federal court.

In a Nov. 14 statement, the U.S. Attorney’s Office for the Eastern District of New York said French national Aurelien Michel pleaded guilty to executing a “rug pull” and admitted to defrauding investors out of $3 million in connection with the fraudulent Mutant Ape Planet NFTs.

Nonfungible Token (NFT) Developer Pleads Guilty to an International Scheme to Defraud NFT Purchasers

Aurelien Michel Conspired to Steal From Purchasers of “Mutant Ape Planet” NFTs Through False Promises and Misrepresentations@HSINewYork @IRSCI_NY https://t.co/K3CzIb8dQD
— US Attorney EDNY (@EDNYnews) November 14, 2023

According to Department of Justice (DOJ) prosecutors, Michel and his co-conspirators marketed the NFTs to investors by falsely promising them rewards and benefits designed to increase the demand for the collection.

Prosecutors said Michel and his associates “intentionally failed to deliver on these promises, diverting millions of dollars’ worth of proceeds for their personal benefit.”

“While Michel purported to sell dream NFTs backed with rewards and benefits, he defrauded investors, turning their dream into a nightmare of deception and losses,” said Thomas M. Fattorusso, special agent in charge of IRS criminal investigation in New York.

“There is no excusing this kind of greed, and today’s guilty plea brings Michel one step closer to realizing his own nightmare — behind bars.”

Michel was arrested in New York on Jan. 4, 2023, on charges related to the scheme. The DOJ said on Jan. 5 that Michel admitted to the NFT collection’s community via a social media chat that he perpetrated a rug pull and said “we never intended to rug but the community went way too toxic.”

Upon sentencing, Michel faces a maximum sentence of five years in prison and has agreed to pay $1.4 million in restitution.

The Mutant Ape Planet collection — which has since been removed from the NFT platform OpenSea — once consisted of 6,797 NFTs minted on the Ethereum blockchain.

In February 2022, it boasted more than 320 Ether (ETH) in sales volume, which dropped significantly by April 2022, two months later.

*Sales of the Mutant Ape Planet NFT collection between Jan. 2022 to Jan. 2023. Source: OpenSea*

By January 2023, around the time of Michel’s arrest, the average price and total sales volume of the collection had cratered to near zero.

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“You can’t solicit funds for a business opportunity, abandon that business and abscond with money investors provided you,” stressed IRS-CI Special Agent-in-Charge Thomas Fattorusso.

The Department of Justice (DOJ) has taken action against an alleged NFT rug pull, after it slapped the founders of the Frosties project with charges relating to fraud and money laundering.

The two founders are accused of purposely concealing their identities to operate a rug pull on the Frosties community by failing to deliver on the project’s roadmap and “utility” which touted rewards for NFT hodlers, giveaways, access to a Metaverse game and exclusive access to future mints from the project.

According to a March 24 release from the Attorney’s Office of the Southern District of New York, 20-year-olds Ethan Nguyen and Andre Llacuna were arrested in Los Angeles and both charged with one count of wire fraud and one count of conspiracy to commit money laundering in “connection with a million-dollar scheme to defraud purchasers” of the NFTs ‘Frosties.’

The DOJ’s complaint alleges that they “abruptly abandoned” and shut down the project within hours of selling out $1.1 million worth of NFTs, and transferred the proceeds to various crypto wallets “under their control in multiple transactions designed to obfuscate the original source of funds.”

“As the term suggests, a 'rug pull' refers to a scenario where the creator of an NFT and/or gaming project solicits investments and then abruptly abandons a project and fraudulently retains the project investors’ funds,” the release stated.

WOW: if you rugpull and don't complete your roadmap, you can be charged with fraud. So many rappers and influencers shaking rn. pic.twitter.com/v7VW7CjoLp
— Coffeezilla (@coffeebreak_YT) March 24, 2022

As part of the release, IRS-CI Special Agent-in-Charge Thomas Fattorusso warned that his team is watching crypto closely, and despite NFTs being a relatively new choice for financial investments, the “rules apply to an investment in an NFT or a real estate development,”:

“You can’t solicit funds for a business opportunity, abandon that business and abscond with money investors provided you. Our team here at IRS-CI and our partners at HSI closely track cryptocurrency transactions in an effort to uncover alleged schemes like this one.”

The DOJ also stated that prior to their arrests in Los Angeles, the duo were preparing to launch the sale of another NFT project dubbed “Embers” that was expected to generate “approximately $1.5 million in cryptocurrency proceeds.”

If they are found guilty, they may face a lengthy stay behind bars as each count carries a maximum sentence of 20 years.

While it appears that more than a few dodgy NFT projects flew under the radar of the DOJ in 2021, there is speculation that the department is ramping up its focus on the NFTs this year via its National Cryptocurrency Enforcement Team (NCET) which was formed in October.

In this instance, the investigation was conducted by agents from the Internal Revenue Service, Criminal Investigation (IRS-CI), New York Field Office of the Department of Homeland Security (HSI) and the U.S. Postal Inspection Service (USPIS).

NFT rug pull

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