Two men have been arrested in the United States on allegations of running a cryptocurrency extortion scheme. One of the arrested individuals, Steven Nerayoff, is the former advisor to the Ethereum project, among other projects in which he served in the same capacity. Arrested with Nerayoff is Michael Hlady who is described as the operations man in the extortion scheme the two were running.
The Department of Justice said that the two individuals were arrested on allegations of having threatened to destroy a cryptocurrency startup if they did not receive Ethereum tokens worth millions of dollars. Richard Donoghue, United States Attorney, said that Nerayoff and Hlady carried out an old fashioned shakedown and demanded to be paid off in cryptocurrency.
Nerayoff was a vital member of the team that constructed the Ethereum network. He was responsible for constructing the legal frameworks which guided Ethereum token offerings. Nerayoff touts himself as the architect of the ICO.
It is alleged that Nerayoff and Hlady targeted a Seattle based cryptocurrency startup that makes use of the digital assets for customer loyalty rewards. The company has not been named, but it makes blockchain based products for firms that are looking to generate user traffic and give these users rewards for their participation.
The scheme is said to have been run through Maple Ventures, an arm of Alchemist LLC. Alchemist LLC is a blockchain consultancy firm which was founded and headed by Nerayoff. Nerayoff provided his services to the unnamed startup through Maple Ventures, and it is this company that later demanded excessive payment through Ethereum tokens.
Nerayoff and Hlady are accused of trying to extort the crypto startup twice since 2017. The startup entered into a contract with Nerayoff’s firm in July 2017 as it planned to execute an initial coin offering (ICO). According to the terms of the contract, Nerayoff’s firm was to receive 22.5% of the funds raised during the ICO and 22.5% of the startup’s issued tokens.
A few days before the ICO went live, Nerayoff is said to have demanded more money from the crypto startup. The statement from the Department of Justice states that Nerayoff demanded that his share be increased from the agreed 13,000 ETH to 17,000 ETH. At the time, this would have been equal to $8.75 million in fiat currency. Nerayoff threatened to destroy the startup if they did not comply with his request, and the startup paid the requested amount. After the funds were paid, no further services were received from Nerayoff and his firm.
The second extortion occurred in March 2018. Nerayoff demanded a 10,000 ETH loan from the crypto startup, the equivalent of $4.45 million at the time. Hlady is said to have followed up the demands from Nerayoff with text messages threatening to destroy the crypto firm’s community. The company paid the loan but it was never paid back.
At some point, the accuser stayed at Nerayoff’s New York apartment after bad weather blocked them from traveling. During that night, Hlady and Nerayoff entered the claimant's bedroom demanding money and making threats.
The two accused individuals appeared in court and Nerayoff was released on a $750,000 bail. Hlady was ordered to reappear in court next week. If the two men are found guilty of the allegations they are facing, they are looking at over 20 years in prison each.
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