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Two men were recently charged by the U.S. Department of Justice (DOJ) with defrauding investors out of more than $22 million in cryptocurrency through a series of NFT “rug pulls.” It will be the largest NFT scam that has ever been prosecuted.
A “rug pull” is often conducted by the creators of NFTs and memecoins. It is, as the DOJ explains, when a “creator of a nonfungible token (NFT) or other digital asset project solicits funds from investors for the project and then abruptly abandons the project and fraudulently retains investors’ funds.”
Last week, two California men were named as part of a six-count indictment that was unsealed in Los Angeles. Both men, Gabriel Hay, 23, of Beverly Hills, and Gavin Mayo, 23, of Thousand Oaks, were also arrested by Homeland Security Investigations (HSI) in Los Angeles.
According to a DOJ press release, from May 2021 to May 2024, Hay and Mayo “sponsored several NFT and other digital asset projects and undertook promotional activities in support of those projects. Hay and Mayo allegedly made or caused others to make materially false and misleading statements regarding the digital asset projects being launched and provided false and misleading project ‘roadmaps’ detailing plans for the NFTs or other digital asset projects after their launch that the sponsors never intended to fulfill.
“For example, the indictment alleges that in promoting the Vault of Gems NFT project, Hay and Mayo falsely claimed that the project would be the ‘first NFT project to be pegged to a hard asset.’ However, instead of pursuing the Vault of Gems project or others as they had represented they would, Hay and Mayo allegedly abandoned the projects after collecting millions in funds from investors.”
Some of the other NFT scams they allegedly spearheaded include digital asset projects Faceless, Sinful Souls, Clout Coin, Dirty Dogs, Uncovered, MoonPortal, Squiggles, and Roost Coin.
A report published in late 2023 stated that over 23 million people own a NFT investment that is now completely worthless.
“For three years, Hay and Mayo apparently lied to their investors in order to defraud them out of millions of dollars,” said HSI Executive Associate Director Katrina W. Berger. “Such technological fraud schemes cost investors millions of dollars every year. Just because such crimes aren’t violent does not mean they are victimless. HSI will continue to investigate, disrupt, and dismantle such cryptocurrency fraud networks.”
Hay and Mayo are each charged with one count of conspiracy to commit wire fraud, two counts of wire fraud, and one count of stalking. The stalking charge stems from them allegedly embarking on a harassment campaign against a Faceless NFT project manager blowing the whistle on them. They now each face a maximum penalty of 20 years in prison on each of the conspiracy and wire fraud counts and a maximum penalty of five years on the stalking count.