Alchemist CEO Steven Nerayoff allegedly extorted an unrevealed Seattle company for $8 million in Ethereum. Only one company fits the bill—StormX.

Old-fashioned extortion

Steven Nerayoff, the CEO of Alchemist, LLC blockchain consultancy, was charged with extortion. Nerayoff was a technology entrepreneur with an impressive track record and involvement in more than a dozen crypto projects. His consultancy is involved with a number of high-profile projects, including Ethereum, CasperLabs, Zcash, Algorand, Lisk, Bancor, and others.

In July 2017, Nerayoff entered into an agreement with a Seattle-based company to help support their initial coin offering. Services that Nerayoff agreed to provide include whitepaper revising, facilitating strategic partnerships, curating pre-seed funding partners, and supporting a successful token sale in general.

In exchange, the agreement entitled Nerayoff to 22.5 percent of all funds raised and tokens issued through the ICO.

Then, Nerayoff allegedly undertook various threats to extract additional compensation from the company while “providing no additional services.” He went as far as to hire Michael Hlady, who at various times falsely claimed to be a former member of the U.S. military and several national intelligence agencies and whose qualifications included “taking down a head of state.”

The company raised a total of 75,700 ETH during the pre-sale and crowdsale periods. Under the original agreement, Nerayoff would have been entitled to 17,000 ETH as payment.

However, he threatened to sabotage the crowdsale, generate negative press for the company, and contact influential people to “destroy” the company if he was not paid an additional 13,000 ETH, worth approximately $3.8 million at the time.

Hlady, on behalf of Nerayoff, then physically intimidated executives from the company for an additional ‘loan’ of 10,000 Ether, according to the documents. The company paid the ETH equivalent of $2 million, at Nov. 7, 2017 prices, to an entity Nerayoff controlled. The startup was never repaid. Large sums of the company’s native token were also extracted during the ordeal.

Yesterday, both men were arrested yesterday for the extortion charges. The two men face up to 20 years in prison if convicted.

One company fits the bill

Of the companies in Seattle’s relatively small blockchain ecosystem, only one company fits the description made in the legal complaint—StormX.

The Department of Justice described the firm as a “startup mobile-based business that specializes in generating user traffic to clients’ products by issuing its own cryptocurrency tokens as loyalty rewards.” With fewer than 15 notable blockchain companies in Seattle, this narrows down the list.

StormX is a gamified microtask platform which “creates opportunities for people around the world to earn cryptocurrency rewards.” Its main product is the mobile Storm Play app, where users can, for example, complete tasks in games or complete surveys for native STORM tokens.

In line with the court complaint, Storm’s crowdsale began Nov. 7, 2017. The amounts described in the complaint are also in line with public figures and dates from Storm’s crowdsale. Few other companies in Seattle were able to raise comparable amounts through token sales.

Not only that, Steven Nerayoff is listed in Storm’s whitepaper as the “chief strategist” for the company, consistent with his LinkedIn profile.

“John Doe” and “Jane Doe,” as described in the court documents, are likely the current CEO of StormX Simon Yu and former COO Arry Yu (no familial relation). Arry Yu left Storm in September 2018 because of “disagreements” with the CEO, as stated earlier in comments to CryptoSlate. It’s unknown whether the extortion charges are related to her departure from the startup.

Both the StormX CEO and COO have also been seen in public with Nerayoff:

Threats made

Assuming the company that was extorted was indeed StormX, the magnitude of the threats are staggering.

In the agreements the startup was coerced to sign, Nerayoff was entitled to 900 million STORM tokens with no other pre-conditions, worth $10 million at the ICO price. This is in addition to the 13,000 ETH the two demanded.

At the conclusion of StormX’s crowdsale, 1.3 billion STORM tokens remained unsold. Around Dec. 1, 2017, StormX incentivized users to retain their tokens by promising to airdrop additional tokens to them. Then, Steven Nerayoff demanded 1 billion of the unsold tokens, worth $11.3 million at the crowdsale price, before decreasing his demand to 350 million tokens.

Alchemist CEO Nerayoff also physically intimidated an executive from the company with the aim of extracting an additional “loan.” Presumably, “Jane Doe” is COO Arry Yu in this instance.

“In the middle of the night, on approximately March 22, 2018, the defendant Hlady walked into the room where Jane Doe was sleeping by herself. Hlady turned on the lights, pulled up a chair to the bed where Jane Doe had been sleeping and told Jane Doe, in sum and substance, that if the company did not agree to his demands, which included, among other things, a demand for $10,000,000 and a large amount of company’s tokens, then ‘we will crush you’ by, among other things, driving down the price of the company’s tokens.”

…

“At some point later that night, the defendant Nerayoff also entered the room. He told Jane Doe, in sum and substance, that he would destroy her and company, but that he did not want to, and asked Jane Doe if she wanted to, in sum and substance, thrive or be destroyed. Shortly thereafter, Nerayoff and Hlady demanded that the company provide a purported 10,000 ETH loan to Nerayoff.”

Nerayoff also made it clear to Arry Yu that he wanted to acquire StormX, according to court documents. Around May 10, 2018, Nerayoff wrote an email to Hlady and another co-conspirator saying:

“We are acquiring them and going to make them fucking rich as hell and she [Arry Yu] will pay off everything and get what she would never have without us so tell her to chill out. We will blow them out as a protocol and they will be part of Alchemist.”

Arry Yu has yet to respond to requests for comment. Simon Yu had the following to say to CryptoSlate:

“I have been asked not to comment on the DOJ investigation at this time.”