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 then watched online as he ran off with it.
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 gives plaintiffs the compensation they asked for.
Goldberg ruled that Gaye must repay about $55,000 to the seven investors. He also must pay exemplary damages of $55,000 because his behavior showed a “reckless disregard” for his victims’ rights and $165,000 in punitive damages because his wrongdoing rose to the level of civil theft. Finally, he must pay his victims’ attorney fees, which haven’t been calculated yet.
In the hour before Goldberg issued his opinion, attorney Kevin Homiak and the seven victims he represents explained how Gaye, operating under the internet pseudonym NFT Machine, took their money, gave them nothing in return, and spent it on pixelated cat photos.
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 website for buying and selling NFTs of digital art.
“I thought that Mr. Gaye was honest and I was very excited about the platform that he was creating,” victim Tyler Rager of Minnesota testified. “It seemed like it was an exciting platform and protocol at the time because NFTs were definitely up and coming.”
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 U.S. dollars or .0074 ether, a cryptocurrency. Within one day, presale purchasers bought up about $500,000 in the tokens. But OpeNFT never launched and investors never received their tokens, according to them.
“There were several points at which refunds were requested. I personally requested a refund,” said Mike Silver, a Los Angeles man who lost $7,300 to Gaye.
Because cryptocurrency transactions are public, OpeNFT investors watched as Gaye spent their money. On Feb. 22, less than one week after the presale, NFT Machine spent $190,000 on NFTs, the lawsuit claims. Within five months, the money was nearly 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 weeks later that he started going crazy and buying this stuff,” Patrick Amato, a Boulder software developer and victim, said of Gaye’s MoonCats purchases.
Steve Milligan, a father of four and cryptocurrency investor in Maine, said there are many NFT scams but OpeNFT “sounded like it was solid. It was a good idea.” So, he invested.
“This one did not have those red flags. He had imagery to show what the site would look like. It sounded like he had a team in place,” Milligan said.
Court records show Gaye was served the lawsuit May 26 at his place of employment, the financial company TIAA 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 “thorough research and investigation,” according to Homiak’s court filings, she tracked him to an Uptown high rise. A process server was then hired to hand Gaye the lawsuit.
That man reached Gaye’s apartment and heard two male voices inside. But after he knocked, the voices went quiet. No one answered the door, according to Homiak, so the lawsuit was left with a property manager. Goldberg ruled that was sufficient Friday.
“Rather than invest proceeds — $492,000 at one time — there is compelling and convincing evidence,” Goldberg said during his ruling Friday, “that Mr. Gaye diverted the funds and used the funds for his own purpose.”