Early Ethereum advisor charged with extortion and arrested

• The accused, Steven Nerayoff, violated the agreement made with a blockchain firm.
• If found guilty, Nerayoff and his associate Michael Hlady will face prison time of 20 years each.

Having been charged with extortion, early Ethereum investor Steven Nerayoff was arrested by the US Department of Justice (DoJ) this Wednesday. Nerayoff was associated with Ethereum, tZero and Casper Labs. The extortion charges involved Alchemist, a Nerayoff-founded blockchain consulting firm. Additionally, the officials arrested Michael Hlady, an associate of Alchemist with similar allegations.

The accused parties threatened an unnamed Seattle-based company that appointed Alchemist to advise on its initial coin offering (ICO), according to the DoJ. An agreement was signed between the blockchain firm and Nerayoff’s firm in November 2017. Under this agreement, the blockchain company agreed to pay 22.5% of the raised funds in exchange for Nerayoff’s company providing ICO services. He also charged 22.5% of the crypto tokens issued by the firm. 

Violating the agreement terms, Nerayoff charged an additional 17,000 to 30,000 Ether tokens a few days before the ICO without providing any additional services. He allegedly threatened the firm’s executives to “sabotage the ICO and destroy the company” if the payment was not made. 

The ICO raised around 75,677 ETH, totaling roughly $32 million. The company paid 30,000 ETH tokens to Nerayoff. According to law enforcement, the tactics used by Nerayoff was “an old-fashioned shakedown, to be paid off with 21st-century cryptocurrency.” 

In March 2018, the accused demanded an additional purported loan of 10,000 ETH from the company. This valued at $4.45 million in fiat at the time. The loan, which was issued by the firm, is still due for repayment. If found guilty, Nerayoff and Hlady will face prison time up to 20 each.