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Early Ethereum advisor Steven Nerayoff arrested in alleged multi-million dollar cryptocurrency extortion scheme

Mike Dudas

Steven Nerayoff, a technology entrepreneur involved with Ethereum, CasperLabs, tZero and dozens of other initial coin offerings (ICOs) and cryptocurrency projects, was arrested today along with Michael Hlady on charges of extortion. The U.S. Attorney for the Eastern District of New York and the FBI's New York Field Office jointly announced the charges.

The two men are charged with threatening to destroy a Seattle-based startup that issued cryptocurrency tokens as loyalty rewards in order to help clients attract users and sell products, in what U.S. Attorney Richard P. Donoghue called "an old-fashioned shakedown, to be paid off with 21st century cryptocurrency."

In November 2017, the company planned an ICO and agreed to an arrangement in which 22.5% of all funds raised and 22.5% of the cryptocurrency tokens issued would be paid to Nerayoff for supporting a successful ICO. However, days before the ICO, Nerayoff demanded an additional 17,000 ETH, valued at nearly $8.5 million, for no additional work. This would have raised his total compensation to 30,000 ETH. He threatened to derail the ICO and destroy the company if his demands were not met. The company acquiesced.

Later, Nerayoff introduced the company to Hlady, who he framed as the "operations guy" with an imposing background in national intelligence that included taking down a head of state. In March 2018, the two men allegedly threatened the company and demanded a "loan" of 10,000 ETH worth ~$4.45 million at the time in order to avoid the company's destruction. The money was sent to Nerayoff and was never repaid.

FBI Assistant Director-In-Charge William F. Sweeney Jr. stated: "When you peel back the layers of this case, an age-old extortion scheme is revealed with a modern day twist. 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."

Nerayoff and Hlady both made their initial appearances this afternoon in federal court. The two men face up to 20 years in prison if convicted.