Law & Politics
Creator of ‘Undead Apes’ NFT Is Found Guilty of Defrauding Investors
The verdict "should serve as a stark reminder that criminals can easily exploit the allure of digital fortunes," a judge ruled.
The verdict "should serve as a stark reminder that criminals can easily exploit the allure of digital fortunes," a judge ruled.
Jo Lawson-Tancred ShareShare This Article
An NFT creator has been found guilty of conspiracy to commit wire fraud and money laundering, connected to the sale of three NFTs collections: “Undead Apes,” “Undead Lady Apes,” and “Undead Tombstone.” His co-creator has pleaded guilty to the same charges. The pair made nearly $400,000 from the scheme.
“These cybercriminals concocted a scheme to defraud investors through a grand illusion and orchestrated a ‘rug pull’ to steal money from unsuspecting people,” according to John Dumas of Homeland Security Investigations Tampa. “This guilty verdict should serve as a stark reminder that criminals can easily exploit the allure of digital fortunes through would be cryptocurrency investments.”
Berman Jerry Nowlin Jr., aged 21, who was found guilty, and Devin Alan Rhoden, 25, who pleaded guilty, released “Undead Apes” and “Undead Lady Apes” on the Solana blockchain in March 2022. They had been imagined as colorful zombie versions of the highly popular Bored Ape Yacht Club (BAYC) living in a post-apocalyptic, digital wasteland in the year 2136. The gruesome avatars soon gained a community of enthusiastic collectors and the “Undead Apes” NFT’s price peaked at $360 a piece.
In April 2022, the pair released their third collection, “Undead Tombstone,” marketed with a litany of “exaggerated, misleading, and outright false” claims about which “utilities” the NFTs would come with, partnerships with other businesses, and the amount of cryptocurrency the developers planned to reinvest into growing the project.
After 632 “Undead Tombstone” NFTs had been minted, raising $135,000 in cryptocurrency, Nowlin and Rhoden abruptly pulled the plug on the mint. The funds were transferred off the Solana blockchain onto the Ethereum blockchain using Tornado Cash, a decentralized service designed to make illegal money harder to trace that has been illegal in the U.S. since August 2022. Nowlin then used the cryptocurrency to buy U.S. dollars, which he moved into his bank account.
Nowlin’s and Rhoden’s Discord and X (formerly Twitter) accounts were also deleted with no explanation, removing any points of contact and plunging the community of collectors into a state of confusion. The U.S. Attorney’s Office for the Middle District of Florida classified this move as a “rug pull,” or “a cryptocurrency investment fraud scheme where developers abandon a project, take investor funds, and leave investors with a worthless asset.”
Nowlin faces a maximum of five years in prison, with sentencing due to take place on January 23, 2025. Rhoden, who pleaded guilty in May, has his sentencing hearing on November 20, 2024.
Several disputes over the marketing and selling of digital assets as NFTs have found their way into the courts. A group of collectors of BAYC initiated a class-action lawsuit against its creators Yuga Labs, the A-list celebrities that promoted it, and Sotheby’s for inflating the value of the playful ape avatars. Sotheby’s, for example, was accused of having “misleadingly created the impression that the market for BAYC NFTs had crossed over to a mainstream audience” of established legacy collectors, thus downplaying the risks of investing during a market bubble. (Yuga Labs and Sotheby’s have rejected the claims.)
Although the U.S. Securities and Exchange Commission (SEC) is working to regulate the market for NFTs, this has not been popular with all market players. In the summer the SEC was sued by two artists who posed questions like, “Should artists be forced to make public disclosures about the ‘risks’ of buying their art?” Two months later, the popular marketplace OpenSea also threatened to sue.