Ethereum advisor arrested in US over alleged crypto extortion scheme

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Everyone knows that Ethereum is having serious difficulties, but things shouldn’t be so bad as to turn to extortion. A technology guru who was involved early on with Ethereum’s initial coin offering (ICO), Steven Nerayoff, has been busted for trying to extort millions of dollars from a crypto startup and is now going to have to answer to the charges in federal court. In addition to Ethereum, Nerayoff has had ties to CasperLabs, tZero and other crypto initiatives. 

According to an announcement by the U.S. Department of Justice (DOJ), Nerayoff and an accomplice, Michael Hlady “threatened to destroy a startup cryptocurrency company if they were not paid millions of dollars in the cryptocurrency Ether (ETH).” Nerayoff was arrested in New York yesterday morning and Hlady was found in Rhode Island, where he will have to appear before a federal judge in the state’s capital, Providence.

The DOJ explains that the victim is a startup mobile-based company out of Seattle, Washington that offers a crypto token as a loyalty reward in order to drive user traffic to its clients’ websites and products. Nerayoff was brought in ahead of the firm’s 2017 ICO to provide guidance and was to receive 22.5% of all money raised and 22.5% of all tokens issues. However, only days before the ICO was to launch, he told the company that he wanted more and increased his asking amount to 30,000 ETH from the initial 17,000. At the time, that would have been worth around $8.75 million – today it’s only worth about $6.24 million. Nerayoff told the company executives that he would destroy the business if he didn’t receive the money. The company reportedly paid the demand.

That turned out to not be enough money for Nerayoff, though, as he went back to the company, this time accompanied by Hlady, who was identified as Michael Peters. He was reported to have been in the Irish Republican Army, the National Security Agency, the Central Intelligence and the FBI and asserted that he had “taken down” a head of state. The pair once again threatened to destroy the company if it didn’t give it a loan for 10,000 in ETH, worth around $4.45 million, but the loan was never repaid.

The company apparently got fed up with the antics and approached law enforcement. The FBI was brought in and an investigation launched, leading to the arrests this week. William F. Sweeney, Jr., the FBI’s assistant director-in-charge, says of the case, “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. The FBI will continue to seek justice for victims who businesses have been targeted by these types of scams.”

Both Nerayoff and Hlady are looking at up to 20 years behind bars if they are found guilty of the alleged crimes. No date for their day in court has yet been established.