Michael Hlady, an associate at blockchain consulting firm Alchemist, pled guilty on Monday to conspiring to extort a startup company for millions of dollars in the cryptocurrency ether. He now faces up to 20 years in prison and a fine.
According to a statement from the Department of Justice (DoJ), Hlady, who also goes by the name “Michael Peters,” appeared in federal court in Brooklyn and pled guilty before U.S. Chief District Court Judge Margo Brodie.
Hlady and his co-conspirator, Steven Nerayoff, an early supporter of the Ethereum project and former advisor to Overstock’s tZero, allegedly issued threats to company executives, including threatening to destroy a startup if it did not agree to demands for additional funds and company tokens.
In 2019 both Nerayoff and Hlady were arrested by the Federal Bureau of Investigation (FBI). In contrast to Hlady’s plea, Nerayoff has entered a plea of “not guilty” to extortion charges and is awaiting trial.
The victim company was a mobile-based start-up that issued ether as loyalty rewards for generating user traffic to its clients’ products and to raise capital. The firm had planned to conduct an initial coin offering (ICO) in November 2017.
Nerayoff’s firm was tapped to advise the startup in July 2017. According to the DOJ, he began demanding larger than contractually agreed-upon ethereum payouts for his help with the company’s ICO that coming fall.
On March 28, 2018, Hlady sent a text message to a company executive stating, in part, “I promise I will destroy your community” if the startup did not comply with the demands.
The company under threat transferred 10,000 ETH to Nerayoff.
Commenting on the case, acting U.S. Attorney Mark Lesko said both Nerayoff and Hlady “used strong-arm tactics to shake down a startup company of cryptocurrency” and thanked the FBI for their work on the case.
“This office and its law enforcement partners are committed to protecting businesses from extortion in whatever manner it is perpetrated,” said Lesko.