Former tZero and Casper Labs Advisor Arrested by FBI Over a $13 million USD Extortion Charge
Two crypto ICO advisors face up to 20 years imprisonment if found guilty of extortion of $13 million USD from a crypto startup.
In a new development, the Federal Bureau of Investigation (FBI) arrested two fintech entrepreneurs over counts of extortion of an Ethereum (ETH) based crypto startup. The two, Steven Nerayoff and Michael Hlady, are accused of extorting a startup by asking for millions of dollars of ETH payments or else destroy the company’s reputation and media image.
The Seattle based, blockchain-built mobile business (named Company 1), accuses Steven Nerayoff, a well-known Ethereum early developer and an advisor to several ICOs including CasperLabs and tZero, and Michael Hlady, Alchemist associate, of forcefully asking for payments by threatening to shut down the company. Richard P. Donoghue, a US Attorney in Eastern District of New York labels the case
“an old-fashioned shakedown, to be paid off with 21st century cryptocurrency.”
Alchemists of Extortion
During the crypto boom phase in late 2017, Company 1 sought out Nerayoff as an advisor to the ICO the company was planning to launch. In the drafted agreement, the parties agreed 22.5 percent of the funds raised and a further 22.5 percent of the crypto tokens offered will be paid to the advisor. Nerayoff’s work entailed facilitating the ICO process and providing advisory services to market the ICO.
However, some days before the ICO commenced, Nerayoff asked Company 1 to increase his payment by 17,000 ETH (~8.5 million USD) to a total of 30,000 ETH despite no additional work done.
Michael Hlady, introduced to Company 1 as Nerayoff’s operation’s assistant, took on the name “Michael Peters”, in order to anonymously threaten the company to make the additional payment. The DOJ claims Hlady told the executives that he had been “part of the Irish Republican Army, the National Security Agency, the Central Intelligence Agency and the FBI, and that he had “taken down” a head of state.”
Reluctantly, the company paid the amount.
A Loan Never Repaid
Following their successful extortion, Nerayoff and Hlady, returned to the company for an extra 10,000 ETH (~4.45 million USD at the time) as a loan in March 2018. The two sent out threats to the company that they would destroy the company’s reputation if not loaned the amount. A message to the executives read,
“I promise I will destroy your community.”
Despite receiving the loan, the two never repaid it back. The loan was never repaid.
tZero released a statement on Thursday claiming no affiliations with Steven or his company, Alchemist. The company reported,
“In the past, Alchemist was a paid advisor to tZERO for its [security token offering]. tZERO has since terminated the advisory relationship.”