A Long Island man was charged for his alleged role in a multi-million dollar extortion scheme to scam a startup cryptocurrency company.
Steven Nerayoff, 48, of Great Neck, and Rhode Island resident Michael Hlady, 47, were charged in Brooklyn federal court this week for their roles in the scheme to defraud a Seattle-based startup mobile-based business.
It is alleged that Nerayoff, an attorney, and Hlady threatened to destroy a startup cryptocurrency company if they were not paid millions of dollars in the cryptocurrency Ether.
U.S. Attorney Richard Donoghue said that the victim specializes in generating user traffic to clients’ products by issuing its own cryptocurrency tokens as loyalty rewards. In November 2017, the company planned an Initial Coin Offering to raise capital, and signed an agreement with an entity operated by Nerayoff.
The agreement stated that Nerayoff agreed to help the company complete a successful Initial Coin Offering in return for 22.5 percent of all funds raised, and 22.5 percent of the cryptocurrency tokens.
Days before the Offering was to take place, Nerayoff allegedly told executives of the company that his compensation would have to be increased by approximately 17,000 ETH to 30,000 of the cryptocurrency Ether - worth approximately $8.75 million - or he would sabotage the Offering and destroy the company.
The company paid Nerayoff as demanded, despite not receiving any additional services.
It is further alleged that Nerayoff introduced those executives to Hlady, who, under the alias “Michael Peters” told the executives that he had 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.
In March last year, it is alleged that Nerayoff and Hlady threatened one of the executives with the destruction of the company if not paid additional funds and company tokens. Later that month, Nerayoff demanded a purported loan of 10,000 in cryptocurrency - worth approximately $4.45 million - and Hlady followed up with a text message to the executive stating, “I promise I will destroy your community” if Nerayoff’s demands are not met.
The company then proceeded to transfer the cryptocurrency to Nerayoff. The “loan” was never repaid.
If they are convicted, Nerayoff and Hlady will face up to 20 years in prison. No return court date has been announced.
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