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According to the U.S. Attorney’s Office for the Southern District of New York, three United Kingdom nationals have been charged with wire fraud and money laundering in connection with the “Evolved Apes” NFT scam, which allegedly defrauded investors of over $2 million in 2021.
The Evolved Apes NFT Scam: A Breakdown
The Evolved Apes NFT collection consisted of 10,000 unique digital artworks featuring mechanized primates. The project promised incredible metaverse and real-world utilities to its community, including a dedicated video game. However, shortly after the NFT minting process which raised 798 Ether (worth $2.7 million at the time), the anonymous developer known as “Evil Ape” vanished along with the funds, never delivering the promised game. This type of fraudulent maneuver, where developers abruptly abandon a project and abscond with investor money after fundraising, is known in the crypto world as a “rug pull”.
The three individuals charged in connection with the Evolved Apes NFT scam are Mohamed-Amin Atcha, Mohamed Rilaz Waleedh, and Daood Hassan, all 23 years old and from the United Kingdom. They allegedly deceived investors by promising that funds from the NFT sales would be used to develop a video game and support various charities, but instead diverted the money to their personal accounts. Each of the three men faces charges of wire fraud and money laundering, which carry maximum sentences of 20 years in prison.
Also, Waleedh attempted to transfer the stolen funds to his personal wallet but the cryptocurrency exchange blocked him pending an investigation. He falsely claimed to need the funds for his grandmother’s cancer treatment to expedite the withdrawal process.
Social media influencers have played a significant role in the promotion of NFTs, including fraudulent projects like Evolved Apes. Some influencers, driven by the fear of missing out (FOMO) on potential profits, have become willing participants in NFT scams. Scammers often create fake social media accounts impersonating well-known NFT influencers to mislead novice collectors and investors.
These impersonation accounts take advantage of the influencer’s reputation to trick people into investing in fraudulent NFT projects. As the NFT market continues to grow, social media and influencers are likely to be increasingly exploited by scammers to promote illegitimate NFT collections. Investors must remain vigilant and thoroughly research projects before investing, as even endorsements from seemingly trustworthy influencers may be part of a scam.
Legal Ramifications of NFT Rug Pulls
NFT rug pulls, where developers abruptly abandon projects and abscond with investor funds, can be classified as either hard or soft rug pulls. Hard rug pulls are clearly illegal, as they involve malicious coding designed to intentionally defraud investors. Soft rug pulls, while unethical, fall into a legal gray area as they typically involve developers dumping their own tokens, crashing the price. Recent legal action, such as the charges against the Evolved Apes creators, indicates that U.S. authorities are cracking down on NFT fraud. However, the legal landscape is still evolving, and it remains to be seen how effectively current laws can be applied to the novel world of NFTs and cryptocurrencies.
Featured image by Pawel Czerwinski
