A former Ethereum advisor Steven Nerayoff and Michael Hlady (also known as “Michael Peters”) were arrested after allegedly making a threat that they will put the cryptocurrency startup company to an end if they don’t get paid millions of dollars worth of Ethereum (ETH).
“As alleged, Nerayoff and Hlady carried out an old-fashioned shakedown, to be paid off with 21st-century cryptocurrency,” stated the United States Attorney Donoghue. “This Office and our partners at the FBI are committed to protecting businesses from extortion, whether the demands are for U.S. dollars or cryptocurrency.”
The startup company remains anonymous and based in Seattle. The loyalty of its consumers was rewarded with cryptocurrency. The firm was creating blockchain-based products for people who wanted to produce and reward user traffic.
Back in 2017, the startup intended to set up an Initial Coin Offering (ICO) in order to raise funds, and had made a deal with an entity managed by Steven Nerayoff. According to the deal, Nerayoff was supposed to help the startup carry out a successful ICO in exchange for 22.5% of all capital raised, and 22.5% of the cryptocurrency tokens. We suspect none of the “investors” knew about just how sweet that deal was.
A few days ahead of the ICO, Nerayoff threatened that his reimbursement would have to be raised from 17,000 ETH to 30,000 ETH (worth about $8.75 million at the time), or he would undermine the ICO and destroy the startup. The startup paid Nerayoff as per his request, without providing the company with any other services.
At a later date, Nerayoff set up a meeting between the company’s directors and Hlady, stating that Hlady is his “operations guy.” Hlady claimed he used to be associated with the Irish Republican Army (IRA), the National Security Agency, the Central Intelligence Agency and the FBI and that he had “taken down” chief of state.
In March 2018, Nerayoff and Hlady told the directors they will put the company to an end if they don’t get additional funds. At the end of March, Nerayoff allegedly asked for 10,000 ETH (worth around $4.45 million at the time), accompanied by Hlady’s text message to the director, “I promise I will destroy your community” if they don’t pay as requested. The startup paid 10,000 ETH to Nerayoff without returning the “loan”.
As stated in the DoJ complaint document, the executives supposedly spent an evening at Nerayoff’s home in New York because they couldn’t leave due to bad weather. According to the statement, Hlady and Nerayoff entered their bedroom in the evening, threatening them and asking for additional funds.
Hlady and Nerayoff appeared in court for the first time on Wednesday. As CNBC reports, Nerayoff was released on bail for $750,000 bond while Hlady was brought to the federal court in Rhode Island and was ordered to appear again in the Brooklyn Federal Court the following week.
If found guilty, the court could sentence Hlady and Nerayoff to a maximum of 20 years in prison.