In a recent court case, the creator of the “Undead Apes” NFT collection has been found guilty of wire fraud and money laundering after a scheme that left hundreds of investors out of pocket. The verdict has spotlighted the potential for criminal exploitation within the digital assets world.

A ‘Rug Pull’ Operation on Solana Blockchain

Berman Jerry Nowlin Jr., 21, and Devin Alan Rhoden, 25, launched the “Undead Apes” and “Undead Lady Apes” collections on the Solana blockchain in early 2022. These digital assets were inspired by zombie-style avatars that captured a fan base and at one point were trading at $360 each. The creators then followed up with a third collection, “Undead Tombstone,” marketed with promises of utilities and partnerships. However, many of these claims were later deemed exaggerated or outright false.

After selling 632 “Undead Tombstone” NFTs and raising $135,000 in cryptocurrency, the creators abruptly abandoned the project and moved the funds to Ethereum using Tornado Cash, a service banned in the U.S. since 2022 due to its potential for laundering cryptocurrency. This left investors with no recourse, as the creators deleted their social media accounts and exited the project, an action classified as a “rug pull.”

Sentencing Awaits for Defendants

Nowlin’s sentencing is scheduled for January 2025, with a potential five-year prison term, while Rhoden, who pleaded guilty, faces sentencing later this month.

This case is part of a growing number of lawsuits that reveal the risks in digital asset investments. Legal cases have already emerged against Yuga Labs, creators of the popular Bored Ape Yacht Club (BAYC), with allegations that marketing strategies artificially inflated the value of BAYC NFTs.

The U.S. Securities and Exchange Commission (SEC) has responded by increasing its oversight of the NFT market, prompting a debate within the industry. In recent months, the SEC faced backlash from both artists and major NFT platforms like OpenSea, with concerns that regulation could stifle creativity.

As the NFT market grows, so does the importance of investor protection and transparency. The case of “Undead Apes” and similar incidents emphasize the need for consumers to remain cautious and conduct thorough research before investing in digital assets. The evolving regulatory landscape aims to bring some stability, but challenges remain in balancing innovation and safety in the NFT world.