MoonCats are non-fungible tokens that skyrocketed in price last year. (Screenshot)
Seven men from across the continent say that one day last year, they and others gave a young Denverite a combined $500,000 in cryptocurrency for non-fungible tokens, received nothing in return and watched helplessly online as he spent their money on photos of pixelated cats.
The seven investors — six Americans, including a Boulder man, and one Canadian — filed a lawsuit May 19 in Denver District Court. In it, they accuse Tyler Gaye of being the artist behind internet pseudonym “NFT Machine.” NFTs are digital tokens sold in speculative online markets.
In the investors’ telling, the ruse began on Feb. 15, 2021. On that day, NFT Machine’s blog, which is still online, announced the creation of OpeNFT. OpeNFT, a portmanteau of open and NFT, was advertised as a soon-to-be website for buying and selling NFTs of digital art.
To raise $500,000 for the new website, NFT Machine announced it would hold a presale of 37,500 “ONFT tokens” for $13.33 in U.S. dollars or .0074 ether, a popular cryptocurrency.
“Excited about OpeNFT’s prospects, many interested purchasers flocked to the presale,” last week’s lawsuit by seven of those purchasers states, “and within a day, presale purchasers contributed approximately $500,000 to the project in the form of cryptocurrency.”
On their blog the next day, NFT Machine wrote that building the OpeNFT website “should take ideally ~1 month but at the most 2 if we want to impress with a lot of features at launch.” After it launched, the presale investors would receive their tokens, according to the blog post.
Nearly three months later, on May 5, 2021, NFT Machine wrote an update thanking investors for their patience and claiming the website was still on schedule to launch in the second quarter of the year. But the website never launched, according to the lawsuit, and NFT Machine never posted again. The investors claim they never received tokens or anything else for their money.
The Instagram page for NFT Machine, an anonymous artist who creates non-fungible tokens using the style transfer technique. (Screenshot)
“From the outset, Mr. Gaye designed and operated OpeNFT as a fraudulent scheme: his plan was to build publicity for a new project, convince purchasers to send him funds, and then abandon the project while pocketing the funds,” the lawsuit states.
So-called exit scams or “rug pulls” are “a common experience” in the burgeoning market for NFTs, according to the New York Times. Last September, an anonymous developer behind the “Evolved Apes” NFTs allegedly fleeced investors out of $2.7 million before disappearing.
(In one brazenly meta scam, developers raised $1 million for “CryptoRugs,” a series of NFTs meant to memorialize famous rug pulls, before revealing that CryptoRugs was itself a rug pull.)
Because cryptocurrency transactions are public, OpeNFT investors could watch as NFT Machine, whom they allege is Gaye, spent their money. On Feb. 22, less than one week after the presale, NFT Machine spent 75 ether (worth about $190,000 then, $145,000 today) buying NFTs, the lawsuit claims. Within five months, nearly all of the presale money was gone.
“Many of the NFTs Mr. Gaye purchased during this five-month period were NFTs for the ‘MoonCats collection,’ a digital art collection of pixelated cats,” according to the lawsuit.
MoonCats were created in 2017, making them some of the oldest NFTs. They were largely ignored until 2021, when 25,440 were “rescued,” according to the MoonCats origin story. Later that year, some were sold by Sotheby’s, the famous auction house. Social media personality Logan Paul paid $522,000 for one — the Pure White Grumpy Genesis MoonCat — in August.
Investors allege they confronted Gaye about his purchases on a social media site in July 2021 and he wrote back, “Im (sic) buying NFTs because its (sic) my ETH and thats (sic) what I wanted to do.” ETH is an abbreviation for ether, the cryptocurrency that investors paid with.
The Twitter account for OpeNFT, a proposed website that investors say was a scam that bilked them out of $500,000 in one day last year. (Screenshot)
The investors want a Denver judge to order Gaye to reimburse them and pay “exemplary damages,” attorney fees and interest “at the highest lawful rate.” They’re also asking the judge “to prevent such misconduct from occurring again” but don’t define how a judge might do that.
According to their website, NFT Machine previously worked in finance, where they specialized in the use of fabricado intelligence for investing. They found this “soul-crushing,” so they quit finance and began making art using a technique known as style transfer.
Style transfer applies an artistic technique — Pablo Picasso’s cubism is a favorite of NFT Machine — with a photo, using computer programs. The result is an image of a koala colorized in the style of Vincent Van Gogh’s 1888 painting “A Pair of Shoes” or a movie poster for “I Am Legend” in the style of Georges Braque’s “At Sunset, Bird XVI 1958,” for example.
There is only scant evidence in the public sphere that Gaye is NFT Machine. There is an account on Gitcoin, a website for computer programmers, for a Tyler Gaye that states he is NFT Machine, but the account has never been active, so Gitcoin lists its provenance as “unproven.”
Kevin Homiak, an attorney with Homiak Law in Denver, wrote in last week’s lawsuit that Gaye outed himself in a chat with investors over Telegram, a social media website. A screenshot of that chat is attached to the lawsuit as Exhibit 2 but the exhibit has been sealed by the court.
Messages left for NFT Machine through their website and Instagram were not answered. A Facebook message for Gaye was not answered.