The case highlights the government's change in attitude in connection with charging tech-savvy young individuals, says an ex-DOJ attorney.
The U.S. Department of Justice has charged two California men in Los Angeles federal court with defrauding investors of more than $22 million in the largest non-fungible tokens scheme it has ever prosecuted.
Gabriel Hay, 23 and Gavin Mayo, 23, sponsored several NFT and other digital asset projects and undertook promotional activities supporting those projects from May 2021 to May 2024, according to the complaint. NFTs are assets like pieces of art, digital content, or video that have been tokenized via blockchain, and can be traded and exchanged for money and cryptocurrencies.
In the indictment announced Dec. 20, the Justice Department alleged Hay and Mayo would publicize to potential purchasers false and misleading project "roadmaps" in which they detailed plans for the NFTS and other digital asset projects post-launch. In doing so, the defendants would hire other people to perform a variety of tasks, such as sales and moderation of affiliated chat groups.
However, once people paid for the NFTs and other digital assets, Hay and Mayo allegedly would defraud the purchasers through "rug pulls," as the defendants abruptly abandoned the projects and split the funds raised between themselves and other co-conspirators. The defendants allegedly repeated these tactics in several projects promoted with names such as Vault of Games, Squiggles and Faceless NFT.
Hay of Beverly Hills and Mayo of Thousand Oaks were arrested Dec. 19 by Homeland Security Investigations in Los Angeles.
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. In Faceless NFT, the defendants allegedly harassed a project manager who exposed Hay and Mayo's deception by sending intimidating messages to him and his parents.
The case is pending before U.S. District Judge Mark C. Scarsi of the Central District of California. The Justice Department charged the defendants with one count of conspiracy to commit wire fraud, two counts of wire fraud, and one count of stalking.
Scott Armstrong, principal at McGovern | Weems in New York, served for nearly a decade in the Justice Department's fraud section and was the lead counsel in the first-ever trial conviction of a crypto executive who conspired to manipulate the price and market volume of digital assets. He noted that whenever there is a "new shiny object in the market," it attracts more fraud.
"This is another case where you have really young individuals who are getting charged in crypto scams and that seems like the trend for the last 18 months," said Armstrong, who is not involved in the matter. "The ages in these schemes are atypical in white-collar cases. It essentially says that kids these days have more technical skills than their other generational compatriots."