French national avoids prison for defrauding NFT buyers after judge says it's difficult to determine their losses

Aurelien Michel, 26, pleaded guilty in November to wire fraud conspiracy, admitting he falsely promised thousands of NFT buyers “exclusive” benefits

A French national who admitted to defrauding buyers of his “Mutant Ape Planet” digital assets in 2022 was sentenced on Friday (Nov 1) to the one month he has already served in a Brooklyn, New York, lockup after his arrest.

Aurelien Michel, 26, pleaded guilty in November to wire fraud conspiracy, admitting he falsely promised thousands of NFT buyers “exclusive” benefits to boost the value of his neon-coloured digital depictions of cartoon monkeys. Prosecutors said he abandoned the project after he’d raised US$2.9 million.

Instead of being sentenced to the 37 months in prison that federal prosecutors sought, Michel was sentenced by US district judge Margo Brodie to a US$15,000 fine and an order to forfeit US$1.4 million.

Brodie said on Friday that the loss amount is unclear, and there is no question that Michel and his co-conspirators ultimately gained or at least received US$2.9 million from the project.

“But there is also no dispute everyone who purchased an NFT obtained or received something of value. What that value is, is unclear,” she said.

Michel’s case is one of only three US criminal prosecutions over alleged fraud in NFT marketing and the first to reach sentencing, lawyers for both sides said after the hearing on Friday.

Before he was sentenced, a tearful Michel apologised to the judge and his victims. “This is my first criminal conviction and I promise you it will be my last,” he said.

Michel's lawyers Ira Sorkin and Adam Brody argued their client should be spared prison, saying purchasers of “Mutant Ape Planet” NFTs received “digital artwork”.

An NFT confirms unique ownership of a digital asset. They were most popularly used for digital art or collectibles such as video clips, memes or items used in online games. At the height of crypto mania in early 2022, NFT series such as Bored Ape Yacht Club and CryptoPunks were fetching millions of US dollars, fired up by endorsements from celebrities such as Paris Hilton and Snoop Dogg. By June of that year, prices of many NFT collections had collapsed.

Prosecutors said in a court filing that “the success of Bored Apes drove demand for other ape-related NFTs. Against this backdrop, the defendant and his co-conspirators began advertising a new NFT project called ‘Mutant Ape Plant’ or MAP”.

Michel’s crimes were a modern “get-rich-quick scheme” designed to capitalise on the NFT craze, according to federal prosecutors Drew Rolle and Dylan Stern. They said he promised buyers rewards and benefits that never materialised, including a Mutant Ape cryptocurrency token he claimed would increase demand for their newly acquired assets.

‘Rug pull’ scam

This type of manoeuvre is known as a “rug pull”, when developers raise funds and then disappear without making good on any promises, prosecutors said.

After purchasers realised they’d been duped, Michel said in a social media post under a pseudonym that he “never intended” to defraud anyone but claimed the “toxic” behaviour within the NFT community led to the rug pull, according to the government. Prosecutors said he and his co-conspirators intentionally abandoned the project after collecting investor funds.

Ultimately, investors purchased the NFTs for US$2,900 each, which led to the transfer of more than US$2.9 million of cryptocurrency to two “digital wallets” Michel controlled, according to the government. Michel was arrested when he arrived at John F Kennedy International Airport in New York in January 2023.

Fraud scams tied to crypto are on the rise, in part because the decentralised structure of digital markets makes them appealing for criminals and difficult for authorities to retrieve lost funds, according to the FBI. Investors lost a record US$5.6 billion in 2023, up 45 per cent from a year earlier, the agency said in a report.

Federal investigators also linked Michel to other well-known NFT scams, including “Fashion Ape” and “Crazy Camels” NFTs, according to Rolle and Stern. For each, once Michel and his co-conspirators sold more than US$1 million of tokens, Michel and his co-conspirators abandoned the NFTs, the prosecutors said.

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