Steven Nerayoff, who was associated with Ethereum, tZero, and Casper Labs, was charged with extortion by the US Department of Justice (DoJ) and was arrested on Wednesday.
The extortion charges involved the Nerayoff-founded blockchain consulting firm, Alchemist. The authorities also arrested Michael Hlady, an associate of Alchemist, and brought similar charges against him.
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According to the DoJ of the eastern district of New York, both the accused were involved in threatening an unnamed Seattle-based company, which appointed Alchemist to advise on its initial coin offering (ICO).
“An old-fashioned shakedown”
Under an agreement signed by the blockchain company and Nerayoff’s firm in November 2017, the company agreed to pay 22.5 percent of the raised funds in exchange of Nerayoff’s service for a successful ICO. In addition, he also charged 22.5 percent of the issued cryptocurrency tokens by the company.
Despite the signed agreement, Nerayoff charged an additional 17,000 to 30,000 Ether tokens days before the ICO without any additional services. He also threatened the company executives to “sabotage the ICO and destroy the company” in the failure of any payment.
The ICO raised 55,677 ETH during the pre-sale of the token followed by another 20,000 ETH after two months in a crowd sale, totaling around $32 million at the time. Amid the threats, the company paid 30,000 ETH tokens to Nerayoff.
Per law enforcement, the tactics used by the accused was “an old-fashioned shakedown, to be paid off with 21st-century cryptocurrency.”
Amid the threats in March 2018, Nerayoff also demanded an additional purported loan of 10,000 ETH, which then valued at $4.45 million in fiat, from the company. The company also issued the loan, which is still due for repayment.
If proven guilty, both Nerayoff and Hlady will face prison time up to 20 years each.
Ties with major crypto projects
An attorney by profession, Nerayoff was among the early supporters of Ethereum. He was also an advisor at tZero, the security token exchange of Overstock.com, and co-founder of Casper Labs, which is developing a proof-of-stake protocol to which Ethreum is planning to shift.
“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,” William F. Sweeney Jr., the assistant director-in-charge of the FBI, said.
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