TL;DR: The U.S. Attorney’s Office Eastern District of New York charged “Steven Nerayoff and Michael Hlady with extortion,” as both men allegedly “threatened to destroy a startup cryptocurrency company if they were not paid millions of dollars in the cryptocurrency Ether (ETH).” Nerayoff has well-known consultant ties to highly visible crypto projects such as Ethereum, CasperLabs, and tZERO. CoinSpice believes the unnamed company under the alleged threat of extortion to have been StormX.
StormX $8M ETH Extortion Plot
In the Complaint and Affidavit in Support of Application for Arrest Warrants, dated 17 September 2019, it outlines, “Upon information and belief, in or about and between June 2017 and November 2018, both dates being approximate and inclusive, within the Eastern District of New York and elsewhere, the defendants STEVEN NERAYOFF and MICHAEL HLADY, also known as ‘Michael Peters,’ together with others, did knowingly and intentionally conspire to obstruct, delay and affect commerce, and the movement of articles and commodities in commerce, by extortion, in that the defendants and others agreed to obtain property, to wit: virtual currency of a business, from individuals with their consent, which consent was to be induced by wrongful use of actual and threatened force, violence and fear, including fear of economic loss.”
The allegedly extorted business, later labeled in the Complaint as “Company 1,” is “headquartered in Seattle, Washington. Company 1 is a mobile-based business that specializes in generating user traffic to clients’ products by issuing rewards in the form of cryptocurrency tokens.” It matches a pretty exact description of StormX, a Seattle-based “gamified microtask platform [that] creates opportunities for people around the world to earn cryptocurrency rewards,” and is known to have had public connections to Nerayoff as a “key advisor.”
StormX presently boasts advisors such as Charles Hoskinson, CEO of IOHK (Cardano/Ada), former CEO and co-founder of Ethereum; Anthony Di Iorio CEO and founder of Jaxx and Decentral, also a co-founder of Ethereum; and Brian Kelly, a contributor on CNBC’s Fast Money. Not listed on the company’s deck is attorney Steven Nerayoff, well-known in Ethereum circles for his legal work, and for also advising other projects such as CasperLabs and tZERO. Nerayoff is now accused of having “carried out an old-fashioned shakedown, to be paid off with 21st century cryptocurrency,” according to Richard P. Donoghue, United States Attorney for the Eastern District of New York.
Authorities believe during the price runup mania of late 2017, StormX “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,” authorities elaborated.
Nerayoff’s alleged conspirator Hlady reportedly claimed to have “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,” the US Attorney’s office noted. “In March 2018, Nerayoff and Hlady threatened one of the executives with destruction of the company if not paid additional funds and company tokens.” At some point, Nerayoff was given a $4.45 million loan in ETH around the time Hlady allegedly made implied threats to a StormX “executive.” CoinSpice believes that executive to have been the founder and CEO of StormX, Simon Yu, who started the company in 2015 with backing from crypto veterans such as Bill Shihara of the Bittrex exchange.
The eventual alleged extortion of StormX would rack up more than $8 million in ETH. Nerayoff’s contends it is he, in fact, who is owed money by StormX, and that rather than pay him, executives levied false charges to muddy public perception. Nevertheless, he was arrested and subsequently released on $750,000 bail. He faces up to 20 years in prison if convicted. The Seattle Times reached out to the StormX CEO for comment, but was ultimately told Yu had been advised not to make any statements regarding the investigation.
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