In a landmark ruling, a federal jury in Tampa, Florida, has convicted 21-year-old Berman Jerry Nowlin, Jr.—known online as “Repulse” and “Zayous”—of orchestrating a fraudulent NFT scheme that exploited investor enthusiasm for quick profit. The U.S. Department of Justice (DOJ) announced on Thursday that Nowlin, alongside his codefendant Devin Alan Rhoden (“Denny” and “Deviinz”), created and then abruptly abandoned three NFT collections on the Solana blockchain, raking in nearly $400,000 in cryptocurrency from hundreds of unsuspecting investors.
Nowlin’s sentencing, set for January 23, 2025, marks the culmination of an investigation that revealed a pattern of deception, commonly known in the cryptocurrency world as a “rug pull.” Rug pulls involve developers building up interest in a project, collecting investment funds, and then abruptly withdrawing support and funds, leaving investors with worthless assets.
The Scheme: Building, Abandoning, And Laundering
The first two collections, titled “UndeadApes” and “Undead Lady Apes”, initially gained traction and value in the resale market, building trust among investors. According to the DOJ, Nowlin and Rhoden seized this momentum to introduce a third collection, “Undead Tombstone”, which was abandoned shortly after release, leaving investors with valueless NFTs. The DOJ reported that the third mint alone brought in approximately $135,000 in cryptocurrency.
To cover their tracks, Nowlin employed a crypto-laundering strategy known as “chain-hopping” to move funds across blockchain networks, making the trail harder to trace. Utilizing Tornado Cash, a decentralized cryptocurrency tumbler, he transferred funds from the Solana blockchain to the Ethereum blockchain before converting the cryptocurrency into U.S. dollars. He then funneled this money into his bank account, effectively washing the profits.
Rhoden, Nowlin’s alleged partner in the scheme, pleaded guilty to similar charges in May 2024 and is scheduled for sentencing on November 20, 2024.
Crypto Laundering and the Risk of Decentralization
This case is notable for its use of Tornado Cash, a cryptocurrency mixer that obfuscates transaction trails by breaking down and mixing funds from multiple users. Tornado Cash and similar platforms highlight the risks associated with decentralized finance (DeFi) networks, where the lack of central oversight creates an environment ripe for exploitation by bad actors.
In recent years, the DOJ and other federal agencies have increasingly focused on crypto laundering methods as they investigate fraudulent activities in the crypto sector. A recent report by Chainalysis, a blockchain data platform, reveals that crypto-based scams hit a peak of $2.5 billion in losses in 2022—with rug pulls accounting for a significant portion of these crimes.
Also Read: Infinex’s Patrons NFTs Shatter $67.7M In Sales In Just 6 Weeks Despite NFT Market Slump
Implications for NFT and Crypto Investors
Nowlin’s conviction underscores the vulnerability of the NFT and broader cryptocurrency markets to fraudulent schemes. Despite growing regulatory scrutiny and more sophisticated anti-fraud measures, cases like these reveal gaps in investor protection, particularly in the volatile and largely unregulated NFT market.
For retail investors, this case serves as a cautionary tale about the risks inherent in decentralized investments. Crypto experts recommend investors look for projects with transparent teams, solid track records, and safeguards like escrow systems or decentralized autonomous organizations (DAOs) that can help hold developers accountable.
With sentencing pending for both Nowlin and Rhoden, the DOJ’s action highlights its commitment to combating fraud in the rapidly evolving crypto landscape. However, the challenge remains significant as cryptocurrency markets continue to attract opportunistic actors.
