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U.S. attorney: Two arrested in ‘old-fashioned shakedown’ of cryptocurrency

September 19, 2019 Rob Abruzzese
Brooklyn federal court. Eagle file photo by Rob Abruzzese
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Two people were arrested this week and will be tried in Brooklyn Federal Court for threatening to destroy a startup cryptocurrency company if they were not paid millions of dollars, the U.S. Attorney for the Eastern District announced on Wednesday.

Steven Nerayoff, a 48-year-old from Great Neck, New York, and Michael Hlady, a 47-year-old from Greenwich, Rhode Island, were charged with extortion in federal court on Wednesday.

Their initial appearance took place in Rhode Island before U.S. Magistrate Judge Steven Tiscione and they are expected to make their first appearance in Brooklyn Federal Court sometime next week.

“As alleged, Nerayoff and Hlady carried out an old-fashioned shakedown, to be paid off with 21st century cryptocurrency,” stated U.S. Attorney Richard Donoghue. “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.”

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The alleged victim was a Seattle, Washington-based cryptocurrency company that specializes in driving web traffic to clients’ products by issuing cryptocurrency tokens as loyalty rewards. It planned an initial coin offering (ICO) in November 2017 and it allegedly signed an agreement with a company operated by Nerayoff to help with the ICO, according to prosecutors.

As alleged in the criminal complaint, Nerayoff then waited until just days before the ICO to demand that his compensation be increased from 22.5 percent of all funds raised to a sum worth approximately $8.75 million; otherwise, it was alleged, he threatened to sabotage the ICO. The company allegedly agreed with his terms and paid the money.

Nerayoff then allegedly introduced executives from the crypto company to Hlady, who used the alias “Michael Peters,” as his “operations guy,” according to the complaint. Hlady then allegedly informed executives that he was a former member of the Irish Republican Army, the National Security Agency, the CIA and the FBI; warned that he had previously arranged for people to be killed and bragged that he had “taken down” the head of a country.

According to the complaint, in March 2018, one of the company executives visited Nerayoff’s Great Neck home to meet with Hlady and Nerayoff. The meeting lasted into the next day, and allegedly the two threatened one of the executives in the middle of the night that if the company did not give them more money and cryptocurrency, they would destroy it.

That was allegedly followed up later that month with a demand for a loan worth approximately $4.45 million. That loan was made by the company, but never repaid.

“I promise I will destroy your community,” said one threatening text message allegedly sent by Hlady.

Nerayoff and Hlady each face up to 20 years in prison if convicted of the charges.

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