US Cracks Down on 2021 Evolved Apes NFT Fraud

The United States Attorney's Office for the Southern District of New York announced today that three individuals have been charged in connection with a non-fungible token (NFT) rugpull from 2021, known as Evolved Apes.

According to a release from the SDNY's office, Mohamed-Amin Atcha, Mohamed Rilaz Waleedh, and Daood Hassan face charges of wire fraud and money laundering.

Evolved Apes was a collection of 10,000 unique NFTs, promising a video game that never materialized. The anonymous developer, Evil Ape, vanished a week after the project‘s launch, siphoning 798 Ether (equivalent to $3 million today, or $2.7 million at the time) from the project’s funds.

U.S. Attorney Damian Williams indicated that the defendants orchestrated a scheme to inflate the price of digital artwork through false promises about developing a video game. They allegedly took investor funds, never developed the game, and pocketed the proceeds. He emphasized that despite the novelty of digital art, making false promises for money remains illegal.

In the cryptocurrency world, this type of scheme is referred to as a rug pull. It involves developers raising funds from investors through the sale of tokens or NFTs, then abruptly shutting down the project and disappearing with the money.

Digital assets, including cryptocurrencies and NFTs, are particularly susceptible to investment frauds and scams due to their decentralized nature, lack of regulatory oversight, and the anonymity they offer. These factors create an environment where fraudulent actors can operate with relative impunity, exploiting the novelty and complexity of digital assets to mislead investors. Additionally, the rapid growth and high volatility of the market attract both inexperienced investors and malicious entities, making it easier for scams like rug pulls to thrive. The technological sophistication required to understand and navigate this space also leaves many investors vulnerable to deceptive schemes.

According to De.Fi's Rekt database, more than $14.5 billion has been lost to rug pulls since 2011.

The largest rug pull to date involved the South African digital assets investment fund, Africrypt, which absconded with 69,000 bitcoins in 2021, worth nearly $4.8 billion at the time.