A Great Neck man was arrested and charged with extortion Wednesday after, federal prosecutors said, he stole millions of dollars’ worth of cryptocurrency from a Seattle startup firm by threatening to destroy the company.
Steven Nerayoff, 48, an attorney and the chief executive officer of Alchemist LCC, was released on $750,000 bond after he appeared in federal court in Brooklyn before U.S. Magistrate Judge Steven L. Tiscione, said Richard P. Donoghue, U.S. attorney for the Eastern District, in a news release.
Donoghue said Nerayoff and another man, Michael Hlady, 47, of East Greenwich, Rhode Island, shook down the unnamed company by forcing it to issue both men more than $13 million in the cryptocurrency of the mobile-based firm that generates user traffic to clients’ products by issuing cryptocurrency tokens as loyalty rewards.
Hlady appeared in federal court in Rhode Island on Wednesday and is scheduled to appear in Brooklyn federal court on Sept. 25, officials said.
“As alleged, Nerayoff and Hlady carried out an old-fashioned shakedown, to be paid off with 21st century cryptocurrency,” Donoghue said. “This office and our partners at the FBI are committed to protecting businesses from extortion, whether the demands are for U.S. dollars or cryptocurrency.”
FBI assistant director-in-charge William F. Sweeney Jr. said, “When you peel back the layers of this case, an age-old extortion scheme is revealed with a modern-day twist,” adding, “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.”
But Nerayoff’s attorney, Avraham Moskowitz of Manhattan, said his client maintained his innocence.
“Mr. Nerayoff vigorously denies all of the allegations in the complaint,” Moskowitz said. “This is a civil dispute which was inflated into a criminal matter by a business colleague who didn’t want to pay money that was owed to Mr. Nerayoff. We are confident that Mr. Nerayoff will be vindicated at trial and we look forward to that opportunity.”
Specifically, prosecutors said, in November 2017 the alleged victim company “planned an Initial Coin Offering to raise capital, and signed an agreement with an entity operated by Nerayoff.”
“Nerayoff agreed to help the company complete a successful ICO in return for 22.5 percent of all funds raised, and 22.5 percent of the issued cryptocurrency tokens,” but he reneged just before the offering and asked that his compensation for his services be nearly doubled to approximately $8.75 million, officials said.
He threatened to destroy the ICO and the company, so it complied with his request, prosecutors said.
In March 2018, “Nerayoff and Hlady threatened one of the executives with destruction of the company if not paid additional funds and company tokens,” prosecutors said, adding that Nerayoff demanded a “loan” worth $4.5 million in cryptocurrency, or else he would destroy the firm.
The company complied and was never repaid, prosecutors said.