Two NFT developers, involved in an alleged “rug pull” scam involving three Solana NFT projects, face prison time after being found guilty of fraud. Their scheme collected nearly $400,000 from unsuspecting investors before collapsing and leaving hundreds with worthless assets.

The ‘Undead’ Collections: A Scheme Disguised as NFTs

The developers, 21-year-old Berman Jerry Nowlin Jr. and 25-year-old Devin Alan Rhoden, launched NFT projects titled “Undead Apes,” “Undead Lady Apes,” and “Undead Tombstone” on the Solana blockchain in 2022. Minting at just $5 per piece, the collections attracted significant attention, initially netting the pair around $135,000. Soon, however, the projects soared in value, with individual NFTs reaching up to $360, pushing their total earnings close to $400,000.

The DOJ reported that the developers enticed buyers with promises of future partnerships, reinvestments, and added “utility” for NFT holders. Just a month after the release of “Undead Apes,” they launched “Undead Tombstone,” but suddenly abandoned it. All social media channels, including Discord and Twitter accounts, were deleted, severing communication with the NFT holders and leaving them with devalued assets.

How the Developers Concealed Their Trail

Following the rug pull, Nowlin and Rhoden attempted to cover their tracks by using Tornado Cash, a controversial crypto-mixing tool banned in the U.S. Tornado Cash allowed them to obscure the flow of funds, using “chain-hopping” techniques to shift assets from Solana to Ethereum and beyond. Eventually, Nowlin converted the funds to U.S. dollars and moved them into his bank account.

This week, the U.S. Department of Justice announced that Nowlin was found guilty of conspiracy to commit wire fraud and money laundering. He now faces up to five years in federal prison, with sentencing set for January 2025. Rhoden, who pleaded guilty to similar charges earlier this year, awaits his sentencing later this month.

Defining a ‘Rug Pull’ and the Fallout for Investors

The DOJ defines a “rug pull” as a fraudulent scheme in which developers abandon a crypto project, leaving investors with worthless assets. The collapse of these “Undead” NFT projects left hundreds of investors facing losses, many of whom were persuaded by false claims of long-term value and exclusivity.

As the NFT space grows, scams like these highlight the need for regulatory oversight and investor awareness. The DOJ’s actions in cases like this underscore a commitment to prosecuting digital fraud, yet the evolving blockchain space presents unique challenges in enforcing these regulations.