Denver NFT fraudster ordered to pay $275K

MoonCats are non-fungible tokens that skyrocketed in price last year. (Screenshot)

A judge has ordered a young Denver man to pay about $275,000 to seven investors who sent him $55,000 for non-fungible tokens and watched him run off with it online.

Denver District Court Judge David Goldberg entered the default judgment against Tyler Gaye on Friday. A default judgment occurs when a defendant does not respond to a lawsuit and the judge awards the plaintiffs the damages they requested.

Goldberg ruled that Gaye must repay about $55,000 to the seven investors. He must also pay exemplary damages of $55,000 because his conduct showed a “reckless disregard” for the rights of victims and $165,000 in punitive damages because his misconduct rose to the level of civil theft. Finally, he must pay the victims’ legal fees, which have not yet been calculated.

In the hour before Goldberg delivered his opinion, attorney Kevin Homiak and the seven victims he represents explained how Gaye, who operates under the internet pseudonym NFT Machine, took their money, gave them nothing in return and spent it on pixelated cat pictures.

NFTs are digital tokens sold in speculative online markets. According to Gaye’s victims, his ruse began in mid-February 2021, when NFT Machine’s blog announced the creation of OpeNFT, a soon-to-be site for buying and selling digital art NFTs.

“I thought Mr. Gaye was honest and I was very excited about the platform he created,” testified Tyler Rager of Minnesota. “It seemed like an exciting platform and protocol at the time because NFTs were definitely on the way.”

To raise $500,000 for the new website, NFT Machine announced it would hold a presale of 37,500 tokens for $13.33 each in US dollars or .0074 ether, a cryptocurrency. In one day, presale buyers bought up about $500,000 worth of tokens. But OpenNFT never launched and investors never received their tokens, according to them.

“There were several points where reimbursement was requested. I personally asked for a refund,” said Mike Silver, a Los Angeles man who lost $7,300 to Gaye.

Because cryptocurrency transactions are public, OpenNFT investors watched Gaye spend their money. On February 22, less than one week after the pre-sale, the NFT Machine spent $190,000 on NFTs, the lawsuit alleges. Within five months, the money was almost 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 victims’ lawsuit, which was filed May 19 in Denver District Court.

“It was only a couple of weeks later that he started going crazy and buying these things,” Patrick Amato, a Boulder software developer and victim, said of Gaye’s MoonCats purchases.

Maine father of four and cryptocurrency investor Steve Milligan said there are a lot of NFT scams, but OpenNFT “sounded like it was solid. It was a good idea.” So he invested.

“This one didn’t have the red flags. He had pictures to show what the site would look like. It sounded like he had a team in place,” Milligan said.

Court records show that Gaye was served the lawsuit on May 26 at his place of employment, TIAA Financial Services in Uptown, with the help of a TIAA assistant. But he never responded. So on July 25, Goldberg ordered Homiak to try harder to reach him.

Homiak, of Denver’s Homiak Law, hired a private investigator to find Gaye. After “extensive research and investigation,” according to Homiak’s court documents, she tracked him to an Uptown high-rise. A process server was then hired to serve Gaye the lawsuit.

That man reached Gaye’s apartment and heard two male voices inside. But after he knocked, the voices fell silent. No one answered the door, according to Homiak, so the lawsuit was left to a property manager. Goldberg thought that was sufficient Friday.

“Instead of investing proceeds — $492,000 at one time — there is compelling and compelling evidence,” Goldberg said during his ruling Friday, “that Mr. Gaye diverted the funds and used the funds for his own purposes.”