https://www.artnews.com/art-news/news/cocreator-undeadapes-nfts-found-guilty-1234723020/

A federal jury in Tampa, Florida, recently found the cocreator of the “UndeadApes” and “Undead Lady Apes” NFT collections guilty of conspiracy to commit wire fraud and money laundering.

According to an announcement from the US Attorney’s Office for the Middle District of Florida published on October 31, Berman Jerry Nowlin Jr., 21, now faces a maximum penalty of five years in federal prison. In May, Nowlin’s coconspirator, Devin Alan Rhoden, 25, plead guilty to the same counts.

Rhoden’s sentencing hearing is scheduled for November 20, while Nowlin’s sentencing is scheduled for January next year.

The US Attorney’s Office said Nowlin was the developer of both the “UndeadApes” and “Undead Lady Apes” NFT projects, zombie-themed images that resemble the more popular Bored Ape Yacht Club NFTs but are unrelated to it. A resident of Huntsville, Alabama, who went by “Repulse” and “Zayous” in the NFT community, Nowlin used an art engine to create the NFTs, managed the blockchain protocol, and coded the smart contracts with the blockchain platform Solana. Rhoden, an active Air Force officer of Pinellas Park, Florida, who used the online aliases “Denny” and “Deviinz,” marketed the NFT projects on Discord and X.

“In the weeks following the respective mints, the average sale price of both NFT collections increased dramatically. For instance, though minted at the cryptocurrency equivalent of $5, NFTs from the UndeadApes collection resold for the equivalent of $360 at their peak,” the USAO press release stated.

After the success of these two collections, Nowlin and Rhoden announced their intention to mint a third NFT collection named “Undead Tombstone” in April 2022, and then made “exaggerated, misleading, and outright false statements to investors, including regarding utilities the NFTs would have, the amount of cryptocurrency that would be reinvested into the project, and partnerships with other prominent businesses,” according to the release.

After Nowlin and Rhoden minted 632 “Undead Tombstone” NFTs worth approximately $135,000 in cryptocurrency in April 2022, the two abruptly terminated the mint and deleted their Discord and X (then known as Twitter) accounts, cutting off all communication with investors. In the cryptocurrency industry, this type of scam is known as a “rug pull.”

Additionally, Nowlin used the decentralized cryptocurrency tumbler Tornado Cash to move the proceeds of the “Undead Tombstone” NFTs from the Solana blockchain to the Ethereum blockchain, a tactic known as “chain-hopping” and which has been labeled a form of money laundering. Nowlin used the Ether cryptocurrency to buy US dollars and then transferred those funds into his bank account.

The US Attorney’s Office estimated that the three NFT collections resulted in Nowlin and Rhoden receiving nearly $400,000 in cryptocurrency from “hundreds of victim-investors all over the world.”

“These cybercriminals concocted a scheme to defraud investors through a grand illusion and orchestrated a ‘rug pull’ to steal money from unsuspecting people, and laundered their ill-gotten gains though other cybercurrencies,” John Dumas, assistant special agent in charge for Homeland Security Investigations in Tampa, said in a statement.

The guilty verdict in the “UndeadApes” case is not the first time charges for wire fraud and money laundering have been brought by US government agencies regarding NFTs. This past June, three UK nationals were also charged by the FBI with conspiracy to commit wire fraud and money laundering for a different NFT scheme known as “Evolved Apes.”

Mohamed-Amin Atch, Mohamed Rilaz Waleedh, and Daood Hassan, all 23 years old, were charged on allegations of running a scam with false promises the purchase of the “Evolved Apes” NFTs would help develop a video game.

According to a published announcement from the United States Attorney’s Office for the Southern District of New York, the three suspects took the investor funds of $2.7 million from thousands of people in 2021 and pocketed the proceeds to personal accounts.