The U.S. Department of Justice (DOJ) has charged two California men in Los Angeles federal court with defrauding investors of more than $22 million in what DOJ describes as the largest non-fungible tokens (NFT) scheme it has ever prosecuted. View the indictment here. Both defendants, aged 23 and hailing from Thousand Oaks, California, were charged with defrauding investors of over $22 million through a series of NFT rug pulls. The term “rug pull” refers to a type of fraud where the creators of a digital asset project solicit funds from investors and then abruptly abandon the project, retaining the investors’ funds.
According to the indictment, the accused, Gabriel Hay and Gavin Mayo, engaged in fraudulent activities from May 2021 to May 2024. They sponsored several NFT and other digital asset projects, promoting them through various channels and making false and misleading statements about the projects’ potential and future plans. To conceal their tracks, Hay and Mayo allegedly used a variety of means, including falsely identifying other individuals or causing other people to be falsely identified as the owners of the project, according to the complaint. One of the key projects mentioned in the indictment is the Vault of Gems NFT project. Hay and Mayo falsely claimed that this project would be the “first NFT project to be pegged to a hard asset,” promising investors that their digital assets would be backed by tangible assets like jewels.
However, instead of fulfilling these promises, Hay and Mayo allegedly abandoned the projects after collecting millions of dollars from investors. They provided false project roadmaps and made misleading statements about the development and future of the projects. This pattern of behavior was consistent across multiple projects, including Faceless, Sinful Souls, Clout Coin, Dirty Dogs, Uncovered, MoonPortal, Squiggles, and Roost Coin.
The alleged fraudulent activities of Hay and Mayo had a significant impact on investors. According to the indictment, many individuals who invested in these projects were left with worthless digital assets and substantial financial losses. The indictment highlights the deceptive tactics used by Hay and Mayo to lure investors, including the use of false identities and the creation of fake project owners to hide their involvement.
One particularly egregious example mentioned in the indictment is the harassment campaign carried out by Hay and Mayo against a project manager who attempted to expose their fraudulent activities. The project manager and their parents were allegedly subjected to threats and intimidation, further illustrating the lengths to which Hay and Mayo were willing to go to protect their scheme.
The indictment against Hay and Mayo includes multiple counts of wire fraud, conspiracy to commit wire fraud, and stalking. If convicted, each faces 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. The U.S. Department of Justice has emphasized the importance of protecting investors and holding fraudsters accountable, particularly in the rapidly evolving world of digital assets and cryptocurrencies
The indictment of Hay and Mayo serves as a stark reminder of the risks associated with investing in digital assets and the importance of due diligence. The rapid growth of the NFT market has attracted legitimate entrepreneurs, but also malicious actors looking to exploit unsuspecting investors. This case highlights the need for increased regulatory oversight and investor education to prevent similar schemes in the future.
