SUMMARY
- Two California men charged in the largest NFT fraud case, stealing $22M via “rug pull” schemes.
- Fraudulent projects included “Vault of Gems” and “Faceless,” promising false features.
- Defendants allegedly intimidated others and hid their involvement in the scams.
- Charges carry penalties of up to 20 years for wire fraud and 5 years for stalking.
- The case highlights the need for caution in the evolving NFT and crypto markets.
Two California men have been arrested and charged in what is being called the largest NFT fraud case to date. Gabriel Hay, 23, of Beverly Hills, and Gavin Mayo, 23, of Thousand Oaks, are accused of running a series of “rug pull” schemes, defrauding investors out of over $22 million in cryptocurrency. The six-count indictment (PDF), unsealed in Los Angeles, details a three-year operation involving multiple fraudulent digital asset projects.
What is a “Rug Pull”?
A “rug pull” is a type of scam common in the cryptocurrency industry. It involves creators of a new digital asset, such as an NFT, heavily promoting their project and soliciting investments. Once they’ve gathered a substantial sum, they suddenly abandon the project, leaving investors with worthless assets and making off with the funds.
The Case
According to the U.S. Department of Justice’s press release, from May 2021 to May 2024, Hay and Mayo allegedly orchestrated a string of these scams, using projects with names like “Vault of Gems,” “Dirty Dogs,” “Faceless,” “Sinful Souls,” and “Clout Coin,” among others. They lured investors with elaborate “roadmaps” outlining ambitious plans for their NFTs, promising unique features and future development.
For example, they claimed the “Vault of Gems” project would be the “first NFT project to be pegged to a hard asset.” However, these promises were reportedly hollow. After collecting millions from investors, Hay and Mayo allegedly abandoned each project, leaving investors high and dry.
They also used various ways to hide themselves in the process, they allegedly identified other persons to be the owners, when actually Hay and Mayo were the owners. One project manager had great emotional distress because of the intimidation coming from Hay and Mayo because he exposed them for being behind the Faceless NFT project.
Authorities Crack Down
The alleged fraud scheme began to come apart when Homeland Security Investigations (HSI) initiated an investigation. “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, emphasizing the devastating impact of these financial crimes, even without physical violence.
“Whenever a new investment trend occurs, scammers are sure to follow,” added U.S. Attorney Martin Estrada, highlighting the ongoing battle against cryptocurrency fraud.
Charges and Future
Hay and Mayo face serious charges, including conspiracy to commit wire fraud, wire fraud, and stalking. Each wire fraud-related count carries a maximum penalty of 20 years in prison, while the stalking count carries a maximum of five years. The final sentence will be determined by a federal judge.
This case is being handled by the National Cryptocurrency Enforcement Team (NCET), a specialized unit within the Department of Justice dedicated to combating crimes involving digital assets. The NCET focuses on investigating cryptocurrency exchanges, mixing services, and infrastructure providers that facilitate illicit activities. This is very important and is a must due to the growth of illicit use of cryptocurrencies.
Lesson for Unsuspecting Investors
This indictment shows the need for staying cautious and informed when investing in NFTs and other digital assets, especially as the market keeps changing. Investors are urged to conduct thorough research and be wary of projects that make promises without clear, actionable plans.
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