Ethereum [ETH] – The FBI arrests a former advisor of the Ethereum ICO team due extortion and fraud

A former aid to the team that developed the leading altcoin Ethereum has found himself on the wrong end of the law. Steven Nerayoff played a ‘somewhat’ important role in architecting the Ethereum ICO back in 2014, then later got involved with the Overstock’s tZero ICO as well as launching the CasperLabs project.

However, it seems Nerayoff was using particular crude means to help blockchain startups launch their projects through ICOs and one of them is now fighting back. On Wednesday, Nerayoff together with his “operations guy” Michael Hlady were arrested by the FBI on charges of extortion. The two will be answering on these charges before a federal court in Brooklyn New York.

The charges have been brought against the duo on behalf of two persons dubbed Jane and John Doe by the Attorney for the Eastern District of New York Richard Donoghue, describing their case as “an age-old extortion scheme … with a modern-day twist.” According to court documents filed by the prosecutor on September 17^th, the victims (Jane and John Doe) hired Nerayoff’s firm – Alchemist – to advice on matters concerning launching an ICO back in July 2017. The Victims’ company is unnamed but only represented in the court documents as “Company 1.”

The contract initially stated that Alchemist would be compensated to the tune of 22.5% of the total tokens sold during the ICO and an additional sum amounting to 22.5% of the amount raised during the token sale “regardless of the method and manner in which [the funds] are raised.”

However, before the ICO was conducted, Nerayoff demanded a bigger compensation package, failure to which he would “sabotage the crowd sale, generate negative press for Company 1 and use his contacts with influential people to ‘destroy’ Company 1,” the prosecutor alleged in the court documents. In Nerayoff’s revised demands, which he communicated to the Company 1 executives Jane and John Doe, he asked for a larger allotment of the ICO tokens in addition to a fee of 30,000 ETH if the ICO would raise in excess of 60,000 in both the pre-sale and the crowdsale. Company 1 apparently agreed to these new terms.

The ICO, which was unnamed, raised 55,677 ETH coins during its presale phase and another 20,000 ETH during the public sale bringing the total funds raised to 75,677 ETH, a sum that was valued at $32 million at the time of the ICO. As per the revised compensation terms, Company 1 paid out 30,000 ETH to Nerayoff. The story did not end there.

In March 2018, Nerayoff reached out to the company executives and demanded a 10,000 ETH “loan” worth about $4.5 million. It was around this time that Nerayoff introduced Hlady to the company executives calling him among other threatening titles as his “operations guy.” Nerayoff and Hlady continued their threats until Jane Doe instructed a company employee to send Nerayoff the demanded “loan” – a sum of 10,000 ETH – between March 28^th and April 1^st. These funds are yet to be reimbursed.

Both Nerayoff and Hlady face jail terms of up to 20 years if found guilty of the alleged accusations