Landmark Judgments On Nft Scams And Digital Art Fraud
1. United States v. Nguyen & Llacuna ("Frosties NFT Rug Pull") (2022)
Facts:
Two individuals, Ethan Nguyen and Andre Llacuna, ran a project called Frosties, an NFT collection. They sold out the NFTs, then abruptly shut down the project, shut off communication channels (like the Discord community), deactivated the website, and transferred the proceeds (~US$1.1 million) via cryptocurrency wallets. This is a classic "rug pull" scam: raising funds by selling NFTs, then abandoning the project and disappearing with investor money.
Legal Issues:
Whether promoting the NFT project with misrepresentations or failing to deliver on promised utility constitutes fraud.
Whether wire fraud / money laundering statutes apply to NFT transactions.
How the funds trail (blockchain evidence, wallet transfers) can be used in proving intent and tracing misappropriated funds.
Court’s / Prosecution’s Findings:
They were charged with conspiracy to commit wire fraud and money laundering. Department of Justice
The indictment alleged that after completing the minting (initial sale) of the Frosties NFTs, the defendants deactivated the project and moved funds in ways intended to obscure their origin. Department of Justice
Impact / Significance:
This represents one of the first criminal prosecutions in the U.S. for NFT fraud involving rug pull type behavior.
Demonstrates that the legal system treats promises made in NFT projects (promising “utility”, future benefits, etc.) as capable of constituting fraudulent misrepresentation if they are false or misleading.
Emphasizes that blockchain transaction history and cryptocurrency trails are being used as key evidence in prosecutions.
Signals to creators/promoters of NFT projects that regulatory / legal exposure is real if they mislead investors.
2. United States v. Nathaniel “Nate” Chastain (OpenSea Insider Trading Case) (2023–2025)
Facts:
Nathaniel Chastain, a former OpenSea employee, allegedly used non-public information about which NFTs or collections would be featured/promoted on OpenSea’s homepage. He bought those NFTs before they would be featured, sold them after, profiting from price appreciation due to the promotion.
Legal Issues:
Whether misuse of confidential business information in NFT markets constitutes insider trading or a form of fraud (wire fraud).
What counts as “property” under the wire fraud statute when dealing with NFTs and metadata.
Proper jury instructions: whether the prosecution must show that the information misused had value to the employer, not just to the defendant.
Court’s Findings:
Chastain was originally convicted by a U.S. trial court for wire fraud and money laundering. law.com+1
However, in 2025 the U.S. Court of Appeals (Second Circuit) vacated the conviction. The appellate court held that the jury instructions were erroneous—specifically, the instructions allowed a conviction even if the confidential information misused did not have commercial value to OpenSea. DLA Piper
Impact / Significance:
Important in defining what “property” means in digital assets cases, especially when the asset is information about promotion rather than the NFT itself.
Sets precedent that fraud statutes cannot just penalize “unfairness” or “dishonesty”—they require a violation of legally protected interests.
Shows courts are carefully considering the line between unethical conduct (which may not always be criminal) and actionable criminal wrongdoing.
3. Janesh s/o Rajkumar v Unknown Person (“CHEFPIERRE”) (Singapore High Court, 2022)
Facts:
The plaintiff Janesh claimed ownership over a Bored Ape Yacht Club NFT (BAYC #2162) and sought a proprietary injunction (a court order preventing someone else from dealing with that NFT). The opposing party was unnamed / “unknown”. The plaintiff’s NFT was allegedly misappropriated or wrongly transferred.
Legal Issues:
Whether an NFT can be considered property under Singapore law.
Whether a court may issue a proprietary injunction (i.e., treat the NFT like an item of property) in order to protect ownership or prevent dissipation of the asset.
Whether law reforms or existing common law principles apply cleanly to NFTs, which are digital and blockchain‐based.
Court’s Findings:
The High Court held yes, NFTs are capable of being property for purposes of equitable remedies. The plaintiff was granted a proprietary injunction over the NFT in question. smulexicon.com
The Court observed that there was sufficient ownership evidence and that the NFT in question had distinctive identity, being part of BAYC, with identifiable token ID, etc. smulexicon.com
Impact / Significance:
This is one of the first judiciary decisions in Asia confirming that NFTs are legal property, which means they can be protected by property law remedies (e.g., injunctions, constructive trusts).
Helps NFT holders have recourse in law in case of theft, misappropriation, or fraudulent disposals.
Shows that legal systems are adapting to treat digital assets not just as speculative tokens but as property rights.
4. HM Revenue & Customs v. Individuals – UK VAT Fraud and Seizure of NFTs
Facts:
The UK tax authority (HMRC) pursued enforcement against individuals suspected of VAT fraud, involving the use of fake companies and other means. As part of the assets seized in the investigation were found to be NFTs (non‑fungible tokens).
Legal Issues:
Whether NFTs may be treated as assets that can be seized under laws dealing with “fraud / tax evasion / evasion of revenue”.
How to treat NFTs for law enforcement purposes—are they property, what is their value, how to detain or freeze them?
Court / Enforcement Findings:
HMRC obtained a court order to seize several NFTs and associated crypto assets. BBC
The seizure was part of an investigation into VAT fraud amounting to about £1.4 million. BBC
Value was estimated; NFTs were detained while investigation continues. HMRC stated it's among the first examples of law enforcement using seizure powers for NFTs.
Impact / Significance:
Sets an enforcement precedent that authorities can treat NFTs as assets for seizure in fraud/tax cases.
Helps clarify that legal tools like asset freezing/seizure apply also to digital and blockchain‐based property.
Serves as a warning that NFTs are not beyond regulatory / law enforcement oversight simply because they are digital or “on a blockchain”.
5. Trademark / Parody / IP Disputes Over NFT Collections – Yuga Labs v. Ryder Ripps (RR/BAYC Case)
Facts:
Yuga Labs (creator of Bored Ape Yacht Club) filed suit against artist Ryder Ripps over his RR/BAYC project, claiming trademark infringement, dilution, and confusion arising out of Ripps’ NFTs which allegedly mimicked BAYC’s branding/mark etc.
Legal Issues:
Whether NFTs that replicate or parody a famous brand and use confusingly similar aesthetics/trademarks violate trademark law.
Whether NFTs are “goods” under trademark law.
Whether consumer confusion has occurred or can be inferred.
Court’s Findings:
A U.S. court awarded damages to Yuga Labs originally, finding the RR/BAYC NFTs were likely to cause confusion among consumers. AInvest
However, on appeal, that judgment was reversed (or vacated) because the court found insufficient evidence that there was actual consumer confusion—the essential element in trademark infringement. AInvest
Importantly, the court reaffirmed that NFTs can be considered as “goods” under US trademark law when applied to NFTs / digital assets. That means trademark law can apply even in the NFT/digital art sphere. AInvest
Impact / Significance:
Clarifies that IP law applies to NFTs; creators can’t avoid infringement simply because the medium is blockchain.
Emphasizes importance of evidence of confusion in trademark cases.
Balances between freedom of expression / parody and trademark protections.
Key Legal Principles Emerging from These Cases
From the above case studies, several legal doctrines and interpretative principles are crystallizing in NFT / digital art fraud jurisprudence:
| Principle | Summary |
|---|---|
| NFTs as property | Courts in Singapore, UK, US are recognizing that NFTs can be "property" for legal purposes, allowing property law remedies. |
| Fraud & misrepresentation apply | Promises made in NFT projects (about future utility, features, roadmap) are subject to fraud claims if false or misleading. “Rug pulls” are actionable. |
| Regulation / wire fraud laws apply | Traditional fraud, money laundering, wire fraud laws are being used to prosecute misconduct in NFT offerings. |
| IP / trademark law relevance | Digital art NFTs may infringe trademarks; NFT creators / collectors must consider IP, brand confusion, etc. |
| Seizure and frozen relief | Authorities are seizing / freezing NFTs as assets in fraud or tax cases; injunctions and disclosure orders are possible even when counterparties are anonymous. |
RELATED Blog
0 comments