A New York man has pleaded guilty to being part of an extortion campaign that took millions of dollars’ worth of Ethereum digital assets from a Seattle-based cryptocurrency startup.
Michael Hlady, who falsely claimed to be part of the FBI, the CIA, the National Security Agency (NSA), and the Irish Republican Army (IRA), had threatened to destroy the unidentified company if it didn’t give him and a co-conspirator millions of dollars’ worth of ether coins.
The company, whose name was omitted from court documents, is a startup mobile-based business that specializes in generating user traffic to clients’ products by issuing rewards in the form of cryptocurrency tokens. In 2017, the company planned an initial coin offering (ICO) to raise capital and signed an agreement with Maple Ventures, a company operated by Hlady’s co-conspirator Steven Nerayoff, to help with the ICO.
Under the deal, Maple Ventures was to receive 22.5% of all the funds raised by the company in exchange for services that included revising the company’s white paper, adding advisers and strategic partnerships to ensure a successful crowdsale, and sourcing and curating pre-seed funding from strategic partners in the blockchain community. The percentage was roughly equal to about 17,000 ether.
However, days before the ICO was to launch, Nerayoff demanded company executives allow Maple Ventures to keep 30,000 ether that the firm had been holding from the pre-sales, which was worth approximately $8.75 million at the time.
Nerayoff also allegedly introduced Hlady to the company’s executive as his “operations guy” and the president of another company Nerayoff controlled called Alchemist LLC. Hlady told the executives that he had been part of the FBI, CIA, NSA, and IRA, and bragged that he had “taken down” a head of state. Nerayoff and Hlady allegedly threatened one of the executives with destruction of the company if they were not paid additional funds and company tokens.
Nerayoff also allegedly demanded a purported loan of 10,000 ether, worth approximately $4.45 million at the time, and Hlady followed up with a threatening text message to the executive saying, “I promise I will destroy your community” if the demands were not met. The company then transferred 10,000 ether to Nerayoff, who never repaid the loan.
“Hlady and his co-conspirator used strong-arm tactics to shake down a startup company of cryptocurrency and will now face punishment just like anyone else who extorts a business,” Mark Lesko, acting US attorney for the Eastern District of New York, said in a statement.
Nerayoff has entered a plea of not guilty to extortion charges and is awaiting trial, while Hlady has pleaded guilty. Nerayoff and Hlady could each face up to 20 years in prison.