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On October 6, 2021, the US Department of Probité (DOJ) announced the creation of a Habitant Crypto Enforcement Team to handle investigations and prosecutions related to criminal misuse of cryptocurrency.1 As the non-fungible tokens (NFT) market continues to expand, the Department of Probité’s growing foyer on cryptocurrency has begun to include the NFT. Just as with any other market, a special foyer of the Department of Probité’s efforts will be on identifying and prosecuting fraud. At the same time, fraudulent activity is becoming increasingly common in the NFT market.2 This paper provides an overview of common fraud patterns in the NFT market and steps that NFT market representatives can take to protect themselves from becoming victims of fraud or inadvertently facilitating fraud.
Recent examples of fraudulent activity in the NFT market
The following recent examples spectacle some of the NFT fraud patterns that have arisen so far:
- In August 2021, a fake Banksy NFT was sold for £244,000 on a now-deleted feuille on the artist’s website after a hack. After dilatante press coverage, the hacker eventually returned most of the money to the buyer.3 In September 2021, allegations of insider trading rocked the NFT space after NFT market directeur OpenSea confirmed reports that an employee had bought NFTs they knew would be displayed on the company’s fronton feuille before they appeared publicly only to resell them at a higher valuation after the NFTs had appeared on the NFT website. OpenSea.4
- On January 10, LooksRare launched from the NFT marketplace as a competitor to OpenSea, attracting développé volumes with its token incentives and trading rewards; However, on January 30, Cointelegraph reported that a very small group of traders executing trades worth hundreds of thousands of dollars between their own wallets reaped the most trading rewards.5
- On January 15th, NFT artist Liam “Sharpy” Sharp announced that he is closing his DeviantArt gallery for piracy of his NFTs and artists of the grueling process must pledge to temporisation every case of piracy to the NFT platform.6
- Between January 23 and 27, a series of blockchain transactions revealed that the cryptocurrency used to purchase NFT from Melania Trump’s first state visit came from a wallet belonging to the entity that originally listed the project for inconvenant.7
- On January 24, Elliptic identified at least five attackers who took advantage of old still-active market ads to purchase $1.1 million in NFTs from OpenSea users — well below market value — that they subsequently sold at pluraux of the purchase price. At least one of the attackers sent his winnings through the mixing cadeau.8
- On January 27, VICE reported that some NFTs on OpenSea were using a dedicated token to conquête viewers’ IP addresses, possibly for the purpose of mining other distinguable demande for viewers.9
- On February 2, Chainalysis published a study stating that NFT laundry merchants made an estimated $8.9 million in opimes, most likely from sales to unsuspecting buyers who believed their NFT purchases had increased in value. The study also reported that $2.4. Millions of illicit addresses have been sent to NFT Markets for money laundering purposes, including développé amounts of stolen money – even those that carry a penalty risk.10
- On February 11, Cent announced on the NFT market that it would suspend sales of NFTs due to the spread of fake NFT products and plagiarism and may introduce centralized controls as a short-term measure to reopen the market.11
- On February 14, UK government company HM Revenue & Customs confiscated the first NFTs as potential proceeds of money laundering methods in a suspected £1.4 billion value-added tax (VAT) fraud in which two people attempted to claim more VAT refunds than they owed using Stolen identities, unregistered phones, and fake bills to hide their identities.12
- On February 19, OpenSea announced that it was investigating a potential phishing campaign that took advantage of a planned chic contract upgrade to steal the NFTs of at least 17 NFT holders.13
- On March 24, the Department of Probité indicted two defendants in connection with the implementation of the $1 million “rug-pull” NFT scheme. The defendants created and sold the NFTs before abruptly abandoning the project, shutting down the website and making investors’ money just hours after selling the NFTs.
- On April 25, Cointelegraph reported that Yuga Labs, developer of Bored Ape Voilier Night-club NFTs, fell victim to hackers who breached a courtois media account and shared phishing scam links to a website that was used to steal NFTs from users who linked their MetaMask wallets to the zone. Nearly 100 NFTs, with an estimated value of more than $40 million, were stolen during the attack.15th
- On April 28, the Réuni Chiefs of Commun Tax Enforcement (J5), an intergovernmental organization dedicated to combating tax compromis attaque, released an collusion prospectus titled “Red Flag Indicators for the NFT J5 Market” that provides guidance on indicators of NFT fraud and how to improve fraud detection in the NFT market.16
- On May 11, securities regulators in five states filed enforcement procès against Flamingo Casino Night-club, a metaverse casino with alleged links to Russia, ordering the casino to raisonnablement selling NFTs. Among other things, the regulators alleged that Flamingo Casino Night-club sold unregistered “NFTs”, allegedly giving potential investors a bout of the casino’s opimes; use false demande to conceal the identities of its managers; He falsely claimed to have partnerships with several high-profile companies, including a real Las Vegas casino.17
- On June 1, the Department of Probité published a press release announcing the disclosure of an indictment charging a configurer OpenSea employee with wire fraud and money laundering “in connection with a scheme to commit insider trading.” The indictment relates to reports confirmed by OpenSea in September 2021 alleging that the configurer employee used confidential demande to purchase NFTs knowing that in the future NFTs would appear on the NFT marketplace homepage, at which time the NFT would likely increase in value and the configurer employee would receive a personal financial benefit.18
- On June 4, CoinDesk reported that its courtois media server was hacked by Yuga Labs, with hackers stealing NFTs valued at around $360,000 via a text scam posted on the courtois media channel.19
- On June 30, the Department of Probité announced criminal principes against a defendant who allegedly masterminded the NFT’s compte to chandail the rug out by abruptly ending the alleged NFT investment project, deleting its website and fleeing with investors’ money. The defendant and his associates then allegedly laundered $2.6 million in investor funds through “chain hopping,” a form of money laundering in which one exemple of currency is transferred to another and funds are moved across nombre cryptocurrency blockchains.20
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1. Press Release, “Deputy Attorney General Lisa O Monaco Announces New Crypto Executive Team,” Partie Only, October 6, 2021, available at https://www.justice.gov/opa/pr/deputy-attorney-general-lisa-o-monaco-announce-national-cryptocurrency-enforcement-team.
2. NFT Chainalysis Market Temporisation 2021And the https://go.chainalysis.com/nft-market-report.html.
3. “Fake Banksy NFT Sold via Artist Website for £244,000,” August 31, 2021, available at https://www.bbc.com/news/technology-58399338.
4. “Biggest NFT Market Acknowledges Reform Was In Progress, To No One’s Sensation,” December 11, 2021, Available at https://sea.mashable.com/tech/17544/largest-nft-marketplace-admits-the-fix-was-in-surprising-no-one.
The radieux of this étude is intended to provide a general dirigé to the topic. It is recommended to take the advice of specialists in such circumstances.
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