Two Southern California men charged with NFT-based cryptocurrency fraud scheme Friday

LOS ANGELES, Calif. – On Friday, a six-count indictment was unsealed charging Gabriel Hay of Beverly Hills and Gavin Mayo of Thousand Oaks in connection with defrauding investors of more than $22 million in cryptocurrency through a series of digital asset-based "rugpulls", a scheme were investors funds are fraudulently retained after a project is abandoned.

Both men are charged with one count of conspiracy to commit wire fraud, two counts of wire fraud, and one count of stalking stated a press release from the U.S. Attorney's Office for the Central District of California.

According to Friday's indictment, from May of 2021 to May of 2024, both men sponsored and promoted several non-fungible token (NFT) projects using allegedly false and misleading statements that they never intended to follow through with.

"Using NFTs to commit fraud not only exploits emerging technology but also erodes trust in the broader digital ecosystem," explained Special Agent in Charge of Homeland Security Investigations (HSI) Michael McCarthy. "The alleged actions of Hay and Mayo, who defrauded investors out of millions over several years, highlight the profound harm these schemes cause. These crimes may not involve violence, but they leave countless victims in their wake. HSI remains dedicated to exposing and dismantling cryptocurrency fraud schemes to protect investors and ensure that technological advancements are used to drive progress, not deception."

A non-fungible token is a digital certificate of ownership for an item or asset that exists on a blockchain, a public and immutable digital ledger or database within a specific network.

Blockchain technology is the basis for new investment options, such as cryptocurrencies, as the information is public and only changeable by a consensus from the network, so transactions can not be changed retroactively.

NFTs can be used to verify or transfer ownership of assets that can include anything from digital art to even real estate.

When NFTs are published on a blockchain, usually by the creator or license-holder, they can then be bought or sold, and that process is called minting.

According to the U.S. Attorney's Office, a rug pull is a new type of fraud where the person minting an NFT or promoting a digital asset project collects funds from investors and then suddenly ends the project and keeps the funds they raised.

"Whenever a new investment trend occurs, scammers are sure to follow," warned United States Attorney Martin Estrada. "My office and our law enforcement partners will continue our efforts to protect consumers and punish wrongdoers involved in crypto fraud."

Hay and Mayo allegedly used this scheme with a variety of digital asset projects including Vault of Gems, Faceless, Sinful Souls, Clout Coin, Dirty Dogs, Uncovered, MoonPortal, Squiggles, and Roost Coin

The pair allegedly used a variety of means to conceal their involvement by falsely identifying other people or causing other people to be falsely identified as owners of the projects by using aliases, denying their involvement, falsely identifying others, and harassing those who publicly identified them as project owners explained the U.S. Attorney's Office.

As a result of the duos and others involved, they were able to raise over $22.4 million from investors and allegedly used interstate and foreign wire transfers to further insulate themselves from discovery shared the indictment.

The image below from page 13 of the indictment details some of those wire transmissions:

For example, in August and September of 2021, Hay promoted the Valult of Gems NFTs by creating or having images created similar to the images below detailed the indictment.

On Sep. 17, 2021, Mayo posted a video on TikTok claiming that the Vault of Gems NFTs were the, "first NFT[s] pegged to a hard asset, like jewelry" and that the project had "already started making [its] own exchange" for jewelers to use explained the indictment.

On Sep. 21, 2021, Hay made the Vault of Gems NFTs available for minting on the Ethereum blockchain and eventually raised more than $1,080,000 worth or Ether from purchasers who had sent funds to the Vault of Gems mint address noted the indictment.

According to the indictment, Hay caused the Vault of Gems smart contract to send funds from the mint address to himself and others in September of 2021 and in October of 2021, Hay directed the registration for Vault of Gems to its associated TikTok account before both men abandoned the project in November of 2021.

If convicted, the pair each face a maximum sentence of 20 years in prison on each of the conspiracy and wire fraud counts and a maximum penalty of five years for the stalking charge explained the U.S. Attorney's Office.

"Gabriel Hay and Gavin Mayo allegedly defrauded investors in digital asset projects of tens of millions of dollars and threatened an individual who attempted to expose their roles in these fraudulent schemes," said Principal Deputy Attorney General Nicole M. Argentieri, head of the Justice Department’s Criminal Division. "Fraudsters take advantage of new technologies and financial products to steal investors’ hard-earned money. The department is committed to protecting investors and will continue to work with our law enforcement partners to root out fraud involving cryptocurrency and other digital assets and bring offenders to justice."