French developer Aurélien Michel is charged with Fraud for alleged $ 2.9 million NFT rug pull
French developer Aurélien Michel is charged with Fraud for alleged $ 2.9 NFT’s rug pull
On January 4, 2023, French footballer, Aurélien Michel, was arrested by US authorities as he passed through JFK airport.
He was immediately taken into custody and brought before a federal judge in Brooklyn, where he was arraigned on a complaint charging him with being the leader of a scheme involving NFT fraud. He posted bail on February 1, 2023 and has been at liberty in the U.S. since that time.
According to a complaint sworn by an FBI agent, Mr. Michel is accused of “knowingly and intentionally devising a scheme or artifice to defraud individual cryptocurrency holders in order to obtain money or property from them by means of one or more materially false and fraudulent pretenses, representations and promises, and for the purpose of executing such a scheme and artifice, did transmit or cause to be transmitted, by means of wire communication in interstate and foreign commerce, writings, signs, signals, pictures and sounds ». (Title 18, United States Code, Sections 1343, 2 and 3551 et seq.)
In order for him to be found guilty of this crime, the government must prove that:
- The defendant engaged in a scheme to defraud;
- The defendant acted with specific intent to defraud;
- The scheme resulted, or would result upon completion, in the loss of money, property, and/or honest services;
- The defendant utilized the courier, mail services or wires in furtherance of the scheme to defraud.
Since April 2022, federal law enforcement officers – in particular, members of the multi-agency Dark Web and Cryptocurrency Task Force – have been investigating a scheme to defraud buyers of NFTs from a collection called “Mutant Ape Planet”, based on the aesthetics of the world-famous and highly prized “Mutant Ape Yacht Club” collection.
The scheme involved soliciting funds from potential buyers, promising them certain benefits before abruptly abandoning the project and keeping the acquired funds. This phenomenon is called a “rug pull” and is well known in the world of cybercrime.
The promised benefits were many and varied: prize draws, exclusive access to other crypto-currency assets and support for a community wallet whose funds would be used to market NFTs.
From January 2022 accounts on social medias platforms such as Twitter and Discord began advertising the NFT “Mutant Ape Planet” project. Messages on social medias described Mutant Ape Planet as a “spin-off collection” of ape-centric NFTs, and directed users to specific websites for more information on the Mutant Ape Planet NFT acquisition, including “mutantapeplanet.com” and a Discord channel for Mutant Ape Planet.
The “mutantapeplanet.com” website presented all the possibilities offered by the purchase of an NFT Mutant Ape Planet and the promise of a vast online marketing campaign designed to highly increase the value of the virtual images.
NFTs, sold on the Ethereum blockchain, cost around $468 each when the collection was launched, based on the price of Ether at the time.
However, once the NFTs had sold out, Aurélien Michel reportedly ceased all communication and withdrew buyers’ funds from the company’s crypto-currency wallets.
According to the US authorities, Aurélien Michel transferred around $2.9 million in crypto-currencies from the buyers to, among other things, asset portfolios controlled by himself.
Subsequently, the only procedural steps taken were orders to continue granted by the magistrate judge overseeing the case at the request of the parties. These various “Orders to continue” can mean several things:
The first possibility is that the parties, i.e. the defendant and the prosecutor, are currently negotiating a “plea”, which is an arrangement enabling Aurélien Michel to plead guilty without having to endure a trial. This type of arrangement is particularly common in the United States. Typically, defendants who plead guilty through a negotiated plea tend to receive more lenient sentences than those who are convicted after jury trials.
The second possibility is that Aurélien Michel’s lawyer, Ira Sorkin (Bernard Madoff’s lawyer, among others), is currently still analyzing the case’s incriminating and exculpatory evidence.
Finally, as permitted by American criminal procedure, it is also possible that Aurélien Michel is a cooperator. This means that, in exchange for a reduced sentence or a more favorable plea bargain, Aurélien Michel would be willing to supply information about co-conspirators in his crime and possibly even testify for the prosecution at the trials of other indicted defendants.
Wire fraud is a federal crime. It is punishable by up to 20 years in prison and a $250,000 fine may also be levied.
The case is USA v. Michel, 1:23-mj-00007, US District Court for the Eastern District of New York (Brooklyn).
Matthew Galluzzo is a federal criminal defense attorney and former Manhattan prosecutor. He speaks fluent French and is a Chevalier in the French National Order of Merit. This article was prepared with the assistance of Marie-Lou Serna, a French trainee lawyer.