In a shocking turn of events, the Department of Justice (DOJ) brought extortion charges against Steven Nerayoff, an early supporter of Ethereum. He also worked as a paid advisor to tZero, an Overstock subsidiary.
Things quickly went south
Nerayoff is an attorney by a professional who is best known for establishing Alchemist, a blockchain consulting firm. On Wednesday morning, the Federal Bureau of Investigation (FBI) arrested him and Michael Hlady, an associate in his company. Nerayoff was brought before a Brooklyn federal court later.
According to the United States Attorney Office for the Eastern District of New York, he was running an “old-fashioned shakedown” or an extortion scheme. The office forms a part of the US Department of Justice. If he is convicted of extortion, Nerayoff could spend the next 20 years in jail. However, his attorney Avi Moskowitz said that it is a civil dispute that is being converted into a criminal case.
However, this hasn’t stopped firms from running in panic. Recently, Casper Labs distanced itself from Nerayoff after the news. A spokesperson for the firm said that the company was unaware of the charges brought against Nerayoff and said that he doesn’t work with them in any capacity anymore.
What does the government allege?
According to the formal complaint, Alchemist was advising an unnamed startup based in Seattle in July 2017 when Nerayoff started demanding a higher payment. According to the contractual agreement, he was to be paid 22.5% of the total number of tokens sold at the company ICO. He was also supposed to get 22.5% cut from the total funds raised by the company. However, before the ICO could proceed, he started demanding the company executives 30,000 ETH coins if the coin sale passed the 60,000 ETH mark. He also wanted a major chunk of the company’s ICO offering.
He threatened the company executives and said that if he is not given the higher payment he will “sabotage the crowd sale” and “generate negative press.” He also said that he would “destroy” the company using his contacts. According to the complaint, the startup agreed to his new payout.
The startup eventually raised 75,677 ETH of which 55,677 ETH was made during the ICO and the rest 20,000 during a crowd sale. The total value of these coins was approx — $ 32 million. Nerayoff took away 30,000 ETH from this sale. He also demanded a 10,000 ETH loan from the company a few months later.