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A cryptocurrency startup has filed a case against its blockchain consulting firm, accusing the latter of extorting it by hijacking its Initial Coin Offering (ICO).
According to a case file presented by a prosecutor for the United States Attorney’s Office for the Eastern District of New York and the FBI, the anonymous startup, which is based out of Seattle, entered into an agreement with New York-based Male Ventures Inc. (a subsidiary of Alchemist LLC.), which presented itself as an accelerator and a blockchain consulting agency.
The owners of the startup, who the filing simply referred to as John and Jane Doe, reportedly hired Maple Ventures to help go through the startup’s corporate paperwork, recommend advisors and prospective partners, and help facilitate a “crowdsale” of their Ethereum-based crypto asset in July 2017.
The agreement would have initially seen Maple Ventures get a percentage of the amount raised in the crowdsale, as well as a cut of the crypto tokens sold as well. Instead, the complaint reads that the consulting firm went on to extort its clients out of their own ICO.
The complaint reads that Steven Narayoff, the chief executive of Maple Ventures, as well as another top company official named Michael Hlady, contacted the crypto firm in the fall of 2017, demanding that the plaintiffs allow them to keep as much as 30,000 ETH (worth up to $9 million at the time) that they had been holding for the pre-sale of the asset. If they didn’t agree to this shakedown, the Maple Ventures executives threatened to dredge up bad publicity for the company, sabotage the company, and ultimately “destroy them.”
The complaint added that Maple Ventures upped their request, going from just millions to a couple of billion dollars in ransom, while also threatening the life of the startup’s principal officers, who had been in New York at the time.
While both Narayoff and Hlady initially refused to dignify the allegations, they eventually appeared before the court on Wednesday to answer to charges of fraud and extortion. Narayoff was eventually released on a $750,000 bond, while Hlady is set to appear before a federal court in Brooklyn next week.
William Sweeny, the Assistant Director-in-Charge for the FBI, commented that this case was no more than a classic, age-old extortion scheme, with a little twist of modern day cunningness. The FBI chief added:
“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.”
It’s interesting to see how this case plays out, especially as it shows that ICO investors aren’t the only ones who need to be wary of extortion. The ICO market has always been dogged with stories of fraud and threats, but this is just about the first time that issuers are being threatened.