Two Arrested for Extortion of Startup Cryptocurrency Company

A complaint was unsealed earlier today in federal court in Brooklyn charging Steven Nerayoff and Michael Hlady with extortion.  Nerayoff, an attorney, and Hlady threatened to destroy a startup cryptocurrency company if they were not paid millions of dollars in the cryptocurrency Ether (ETH).  Nerayoff was arrested this morning, and will make his initial appearance this afternoon before United States Magistrate Judge Steven L. Tiscione.  Hlady was arrested this morning in Rhode Island, and will make his initial appearance this afternoon in federal court in Providence. 

Richard P. Donoghue, United States Attorney for the Eastern District of New York, and William F. Sweeney, Jr., Assistant Director-in-Charge, Federal Bureau of Investigation (FBI), New York Field Office, announced the charges.

“As alleged, Nerayoff and Hlady carried out an old-fashioned shakedown, to be paid off with 21^st century cryptocurrency,” stated 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.” 

“When you peel back the layers of this case, an age-old extortion scheme is revealed with a modern day twist,” stated FBI Assistant Director-in-Charge Sweeney.  “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.”

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. 

Subsequently, Nerayoff introduced the executives to Hlady, who used the alias “Michael Peters” and who Nerayoff described as his “operations guy.”  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.  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.   

The charges in the complaint are allegations, and the defendants are presumed innocent unless and until proven guilty.  If convicted, Nerayoff and Hlady each face up to 20 years’ imprisonment.

The government’s case is being handled by the Office’s Business and Securities Fraud Section.  Assistant United States Attorneys Mark E. Bini and Andrey Spektor are in charge of the prosecution. 

The Defendants:

Steven Nerayoff
Age:  48
Great Neck, New York

Michael Hlady (also known as “Michael Peters”)
Age:  47
East Greenwich, Rhode Island

E.D.N.Y. Docket No. 19-MJ-830