Cryptocurrency Consultants Allegedly Extorted $8 Million From Clients
Two New York scammers running a cryptocurrency consulting company extorted their clients for $8.23 million using fake military personas, secret legal agreements, and midnight threats to “destroy” their clients’ business, according to a newly released criminal complaint.
According to a complaint unsealed Wednesday by the U.S. Attorney’s Office for the Eastern District of New York, Steven Nerayoff, a 48-year-old attorney and entrepreneur, ran three companies that together extorted an unnamed Seattle startup known as Company 1 in the complaint. The company’s business centered on drumming up interest for clients by “issuing its own cryptocurrency tokens as loyalty rewards” for its products.
His partner at one company was Michael Hlady, a 47-year-old attorney who allegedly posed in his business dealings as “Michael Peters.” According to the complaint, Hlady claimed to have deposed a head of state and killed other people in the course of his work for the U.S. military, Irish Republican Army, FBI, CIA, and NSA.
Nerayoff made a demand of his client in March 2018, nine months after their first meeting—a loan of 10,000 Ethereum tokens, worth $4.45 million, that he would never pay back, according to the complaint. He allegedly introduced Hlady to the two owners of Company 1 as the president of Alchemist, describing him as a high-powered former government agent licensed to carry firearms through airports.
On March 20, 2018, the startup owners visited Nerayoff’s home in Great Neck, New York, the complaint reads, and Hlady was there as well. Because a snowstorm delayed her flight out, one company owner stayed overnight, according to the complaint.
In the middle of the night, the complaint alleges, Hlady walked into her room, pulled a chair up to the side of her bed, threatened to destroy her company, and demanded $10 million. Nerayoff later joined them and reiterated the threat, according to the complaint, again demanding the $4.45 million in Ether. The company transferred the money shortly after, the suit reads, and Nerayoff never paid it back.
Both Nerayoff and Hlady are charged with extortion, and both have been arrested. Nerayoff has been released on a $750,000 bond, and Hlady, who was first taken into custody in Rhode Island, was ordered to appear in Providence federal court Wednesday afternoon, according to the U.S. Attorney’s Office. If convicted, they face 20 years in prison apiece.
“As alleged, Nerayoff and Hlady carried out an old-fashioned shakedown, to be paid off with 21st century cryptocurrency,” U.S. Attorney Richard Donoghue said in a press release.
Nerayoff’s lawyer Avi Moskowitz denied the allegations to The Daily Beast, saying: “The alleged victims owed my clients a lot of money, and they used the criminal process to get out of paying it. We are confident that Mr. Nerayoff will be vindicated at trial.” Hlady could not be reached for comment.
Nerayoff first took on the startup as a client in July 2017 to assist with its fundraising and initial coin offering (ICO), a sale of digital tokens on the blockchain that represent a stake in a company. New and unregulated, ICOs have in the past attracted digital con artists and those in search of get-rich-quick schemes. The terms of their original agreement stated that Nerayoff would keep 22.5 percent of the money raised through the ICO, which people bought into using the cryptocurrency Ethereum. One Ether (ETH) was worth between $185 and $255 at the time.
Nerayoff wasn’t satisfied with the terms, though, so he allegedly held his client’s money hostage. He raised $16.24 million worth of Ether tokens before the ICO began on Nov. 7, 2017, entitling him to $3.78 million in Ether, according the original agreement described in the complaint, which the company paid. However, in the week before the sale started, Nerayoff and an unnamed co-conspirator began threatening to sabotage the offering and “destroy” the company unless it paid him $8.75 million in Ether, the complaint alleges.
Nerayoff allegedly gave the company an ultimatum: sign two clandestine agreements or he would keep all the presale money. The two owners of Company 1, identified in the complaint only as John and Jane Doe, signed the night before the ICO started.
Under the terms of one agreement, the company would pay Nerayoff more money if he raised more for its ICO, some in Ether and some in the company’s own tokens. The second agreement descended even further into extortion, the complaint alleges. The contract allegedly demanded that Nerayoff’s clients transfer another $8.75 million in Ether to SDN, a company Nerayoff owned, regardless of his fundraising efforts. The complaint doesn’t specify if the company complied.
Both contracts stipulated the clients could not disclose the existence or the terms of the contracts to any third parties, the complaint alleges.
Nerayoff and Hlady allegedly continued to threaten the owners of the company for months. Nerayoff informed Jane Doe he knew where her child lived, according to the complaint. Hlady’s threats once even tracked to his flight times, according to the suit. He was boarding a flight at New York’s John F. Kennedy Airport in late March 2018 when he demanded the owners send the loan by the time he landed or “I promise I will destroy your company,” he texted, according to the complaint.
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