Early Ethereum Advisor Arrested by Federal Authorities on Extortion Charges

An early advisor to Ethereum, the world’s second-most valuable blockchain, has been arrested by federal authorities on extortion charges. Steven Nerayoff, lawyer and technology entrepreneur, and his accomplice Michael Hlady were arrested Wednesday morning on charges of extortion. They threatened to destroy a Seattle-based mobile startup, which held its ICO in November 2017.

According to the charges, Nerayoff and his partner, who was introduced as “Michael Peters” to the defendants, consulted on the startup’s initial coin offering (ICO) held in November 2017.

Nerayoff threatened to destroy the offering unless he was paid 30% of the overall amount raised, up from the 22.5% raised earlier. The startup’s founders acquiesced and Nerayoff ended up pocketing an extra $3.78 million (based on Ether prices at that time) from the offering. Subsequently, Nerayoff extracted a “loan” of 10,000 Ether from the defendants that he did not pay back.

As described by federal authorities, the backstory of how he got this loan is a sordid one.

Hlady had come into the picture by then, having recently been introduced to the defendants as an “operations guy”. He walked into the one of the defendant’s room, when she was staying overnight with Nerayoff during a visit to New York, pulled up a chair, and told her that “we will crush you” if she did not agree to their demands. Nerayoff joined later him later that night and repeated the message. He also asked her if she wanted their company to thrive or destroy.

Hlady also sent her a series of text messages to the same effect later while traveling from John F. Kennedy Jr. Airport in New York. One of the messages was as follows “…Fix this by the time I land or I promise I will destroy your community. (1) we will go public with Stevens holding. (2) we will sell and get everyone we know to sell. (3) we will sue you. (4) a story will be written about [Company 1]. You are stalling for stalling’s sake. I will be landing in 4hrs I expect you and [John Doe] on the phone. Also I want the “manual” you wrote today!!”

“As alleged, Nerayoff and Hlady carried out an old-fashioned shakedown to be paid off with 21st century cryptocurrency,” Richard P. Donoghue, U.S. attorney for the Eastern District of New York, stated in a release. “When you peel back the layers of this case, an age-old extortion scheme is revealed with a modern-day twist,” stated FBI Assistant Director-in-Charge William F. Sweeney Jr.  “Imposing forceful demands on a company for personal gain is risky business, whether one’s preference is to be paid off with cryptocurrency or cold hard cash.”

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