Self-Proclaimed “Ethereum Co-Creator” Arrested in Case of Alleged Extortion

Lawyer, self-proclaimed Ethereum co-creator and “architect of the ICO,” Steven Nerayoffhas been charged with extortion for allegedly, “…threaten(ing) to destroy a startup cryptocurrency company if…not paid millions of dollars in the cryptocurrency Ether (ETH).”

Nerayoff’s LinkedIn profile indicates he has been, “an advisor or investor in more than 25 leading projects including Ethereum, CasperLabs, tZERO, Lisk, and AION.”

According to a release from the US Attorney’s Office in the Eastern District of New York, Nerayoff and an alleged co-conspirator, Michael Hlady, were both arrested early on Wednesday, September 18th, and appeared before judges that afternoon.

The release states that Micheal Hlady is a resident of Rhode Island.

A news report by CBS Boston states that a Rhode Island man named Michael Hlady was sentenced in 2011 to two-and-a-half years in prison years after pleading guilty to defrauding nuns running a Catholic school out of $363 000 USD.

That individual, who appears to be the same age as the Michael Hlady charged Wednesday, admitted to, “…an elaborate (fraud) scheme…(that included the use of) phony documents and phone calls where he would impersonate (a ‘wealthy donor’ called Arthur) Remillard.”

The school was left ‘almost penniless’ in that case.

US Attorney Richard P. Donoghue says Neyaroff and Hlady, “…carried out an old-fashioned shakedown, to be paid off with 21st-century cryptocurrency.”

The scheme allegedly involved Hlady posing as Nerayoff’s “operations guy” using the pseudonym ‘Michael Peters.’

Hlady allegedly told executives at the victim company that he was a former member of the Irish Republican Army, the NSA (National Security Agency), the CIA (Central Intelligence Agency) and the FBI (Federal Bureau of Investigation).

According to the release regarding Neyaroff’s arrest:

“The victim company, headquartered in Seattle, Washington, is a startup mobile-based business that specializes in generating user traffic to clients’ products by issuing its own cryptocurrency tokens as loyalty rewards.  In November 2017, the company planned an Initial Coin Offering (ICO) to raise capital, and signed an agreement with an entity operated by Nerayoff.  Under the agreement, Nerayoff agreed to help the company complete a successful ICO in return for 22.5% of all funds raised, and 22.5% of the issued cryptocurrency tokens.  Just days before the ICO was to occur, Nerayoff told executives of the company that his compensation would have to be increased by approximately 17,000 ETH to 30,000 ETH (worth approximately $8.75 million at the time), or he would sabotage the ICO and destroy the company.  The company paid Nerayoff as demanded, despite not receiving any additional services.”

Neyaroff allegedly extorted the company again in March 2018:

“In March 2018, Nerayoff and Hlady threatened one of the executives with destruction of the company if not paid additional funds and company tokens.  Later that month, Nerayoff demanded a purported loan of 10,000 ETH (worth approximately $4.45 million at the time), and Hlady followed up with a text message to the executive stating, ‘I promise I will destroy your community’ if Nerayoff’s demands are not met.  The company then transferred 10,000 ETH to Nerayoff.  The  ‘loan’ was never repaid.”

These claims are allegations only and have not yet been proven in a court of law.

If convicted, the two men could face up to 20 years in prison.

Ethereum Foundation member Alex Van de Sande has tweeted that Vitalik Buterin, who conceived Ethereum, told him he, “met (Neyaroff) a few times” and that he “helped us with legal stuff back in 2014.”

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