Top Executives Associated With Ethereum and tZERO Indicted on Federal Charges [Full Breakdown]
On Wednesday, September 18th, 2019, two individuals with strong connections to both Ethereum and tZERO were arrested for their role in extorting a cryptocurrency startup.
The DOJ press release can be found here: https://www.justice.gov/usao-edny/pr/two-arrested-extortion-startup-cryptocurrency-company
Below is a screenshot of the headline on the DOJ’s website:
Brief summary of the DOJ press release:
- The two individuals charged are: Steven Nerayoff and Michael Hlady
- The DOJ accuses the two individuals of being involved in an ‘old-fashioned shakedown’
- An unnamed company had retained the services of Steven Nerayoff and Michael Hlady (going under the pseudonym Michael Peters) in November 2017 for their ICO ; an agreement was signed with an “entity operated by Nerayoff”
- “Under the agreement, Nerayoff agreed to help the company complete a successful ICO in return for 22.5% of all funds raised, and 22.5% of the issued cryptocurrency tokens”
- Nerayoff arbitrarily told executives that his fee needed to be increased to 30,000 Ethereum (rather than the 13,000 Ethereum they had initially agreed to); if the funds were not paid, then Nerayoff threatened to sabotage the project entirely ; Nerayoff was paid in accordance with his demands despite the company “not receiving any additional services”
- After this fee was increased, Hlady was introduced to the company by Nerayoff under the pseudonym, Michael Peters
- Hlady was given a bogus resume by Nerayoff that stated that he was “part of the Irish Republican Army, the National Security Agency (NSA), the Central Intelligence Agency (CIA) and the FBI” and that he had “‘taken down’ a head of state”.
- Nerayoff again attempted to extort the unnamed company in March ’18 (using the same threat of ‘exposing’/destroying them) if he was not given a loan of 10,000 Ethereum (valued at $4.45 million at the time of the extortion attempt, according to the DOJ)
- In response, the company obliged with Nerayoff’s request, once again, and forwarded him the loan of 10,000 Ethereum ; Nerayoff failed to ever repay said loan
- If convicted, both Nerayoff andf Hlady could face up to 20 years each.
The actual pdf ‘unsealed’ arrest warrant documentation for both individuals can be found here: https://www.justice.gov/usao-edny/press-release/file/1203466/download
Unpacking the Indictment and Unraveling its Significance
In order to understand why any of the information contained in the DOJ report is of any significance, we must first gain an understanding of who Nerayoff and ‘Michael Peters’ (Hlady) are and what their roles are/were in the cryptocurrency community at large.
Let’s start off by getting into the background of Steven Nerayoff, since there is a wealth of information available online (still) regarding his involvement with various projects and entities in the cryptocurrency space.
CEO and Founder of Maple Ventures
To start with, Steven Nerayoff is the CEO and co-founder of Maple Ventures
Notably, Maple Ventures is one of ZCash’s seed investors:
Source: http://cloudparc.com/draft/?page_id=16 [not SSL secured w certificate; warning]
Nerayoff also started the company, CloudParc.
The most pertinent and relevant (to this piece) relationship that Steven Nerayoff has had in the crypto space has been as a core facet of tZERO’s project development.
Check out the (cached) entry below on the Alchemist website (which Nerayoff is also at a CEO and co-founder for):
In case there is any trouble reading the above, the entry states that:
- Steven Nerayoff is the CEO of Alchemist
- “Has advised or invested in more than 25 leading projects including Ethereum, CasperLabs, tZERO, Lisk, and Aion”
- “Nerayoff’s experience in the blockchain industry ultimately led him to launch Alchemist. Alchemist is a leading consultancy, and investment firm for high-potential blockchain companies. The company and/or its founder, Steven, have advised or invested in many of the most prestigious blockchain projects.”
- “Alchemist Founder Steven Nerayoff is well-known for innovating the legal concept of the ‘utility’ token, and has been referred to as the Architect of the Initial Coin Offering (ICO).”
- “Steven also set the standard by designing the seminal Security Token Offering (STO) for tZERO, the world’s first security token exchange.”
- “Nerayoff is Chairman and Co-Founder of Adaptive Holdings LTD, the parent company of CasperLabs, a fully decentralized, scalable next-generation Blockchain implementing CBC Casper Proof-of-Stake protocol.”
Curiously, the breakdown of Nerayoff’s resume on this site is a good bit more substantial than what can be found on other sites that detail Nerayoff’s biography (most only have him associated with 2 or 3 entities at most).
Additional Companies that Nerayoff Was Involved With
In the bullet pointed summary above, there were a few companies that we can see Nerayoff was involved with that were not previously listed in this article.
Namely, they were:
- Adaptive Holdings
Before we get to Lisk or Aion (two cryptocurrency projects), let’s first take a look at CasperLabs and Adaptive Holdings.
Adaptive Holdings and CasperLabs
Adaptive Holdings LTD and CasperLabs are being linked together in this section because of their intuitive relationship with one another.
Notably (corrborated by Nerayoff’s own LinkedIn profile at the time of writing), Steven Nerayoff is the, ‘Chairman and Co-Founder of Adaptive Holdings LTD, the parent company of CasperLabs’.
Adaptive Holdings LTD
Here is the SEC Form D for ‘Adaptive Holdings LTD’ (submitted in 2018), for the $2.8 million offering (and successful raise) by the company: https://www.sec.gov/Archives/edgar/data/1772355/000177235519000002/xslFormDX01/primary_doc.xml
Below are the relevant screenshots:
Mrinal Manohar’s Name Already Being Publicly Dissociated From Adaptive Holdings LTD
Despite signing the SEC Form D filing (shown above in the previous section) as the primary individual responsible for the issuing of the securities offering that helped the company (Adaptive Holdings LTD) raise $2.8 million, Mrinal Manohar’s name already seems to be largely dissociated from Nerayoff:
Above is Mrinal Manohar’s profile on Bloomberg. While there are no press releases stating that Mrinal Manohar is no longer affiliated with or a part of Adaptive Holdings LTD, it appears that his name has already been scrubbed from the project entirely.
Curiously, if one were to look up Adaptive Holdings LTD on Bloomberg, the page that previously held such information would display as ‘unavailable’.
Implications For CasperLabs
Notably, Adaptive Holdings LTD is the parent company for CasperLabs.
This is relevant to Ethereum, in particular, because CasperLabs is widely known in the cryptocurrency space as being responsible for development on the Casper CBC (correct-by-consensus) protocol, which is meant to be a “family of ‘correct-by-construction’ consensus protocols that share the Byzantine fault tolerant consensus safety.”
The protocol, constructed by Vlad Zamfir (one of Ethereum’s core developers), is supposed to be one of the primary forces assisting Ethereum in its bid toward scaling to ‘ETH 2.0’.
Which explains the company’s (CasperLabs) decision to name Vlad Zamfir as its ‘Lead Architect’ in February 2019:
Thus, when news hit the cryptosphere that CasperLabs received approximately $15 million in funding a little over a week from the DOJ’s unsealing of their federal indictment on Steven Nerayoff, many in the cryptosphere championed this fundraise as clear external validation of CasperLabs’ development roadmap and thus, the overall plan for Ethereum to successfully reach ETH2.0.
However, with Steven Nerayoff’s recent arrest, its worth questioning the stability of CasperLabs going forward.
As mentioned above, Steven Nerayoff was not just the backer of CasperLabs — he served as its co-founder, CEO, its parent company CEO and, ultimately, the visionary for which direction CasperLabs would go in the future.
For further evidence of Nerayoff’s enormous influence on CasperLabs, check out this YouTube video below where Nerayoff sits for an interview and explains CasperLabs’ role in ushering Ethereum toward the ‘ETH2.0’ scaling goal as well as his personal stake and involvement in making this possible:
Nerayoff has also done a number of additional interviews in which he discusses the merits of Casper CBC as well as CasperLabs’ ability to ultimately bring its vision to fruition:
Potential Involvement With Algorand?
Curiously, if one visits Steven Nerayoff’s Twitter page, numerous posts related to Algorand can be found.
Below are a few examples that are still on Nerayoff’s Twitter at the time of writing:
The links (and archived links) for all of the above tweets are:
- https://twitter.com/stevennerayoff/status/1157121981248147457 /
Curiously, Algorand had also retweeted Nerayoff within the last 12–24 hours, but it appears that in light of the recent DOJ unsealed indictment, they have retracted said retweet:
However, while the above retweet was deleted, the responses that Algorand gave to one of Nerayoff’s exuberant tweets exclaiming the benefits of Algorand was not:
Links to Responses:
While there are no explicit connections between Nerayoff and Algorand that can be found, it is worth mentioning that:
- Silvio Micali is known as one of the originator(s) / co-founder(s) of the concept of ‘Zero-knowledge proofs’
- ZCash (headed by Zooko Wilcox) is widely known as the first real blockchain deployment of zero-knowledge proofs (ZK-Snarks)
- Nerayoff was one of the seed investors in ZCash (under Maple Ventures)
- It is known that Nerayoff was involved with 20+ cryptocurrency projects (although they are not all listed, conveniently)
Potential Connection Via Alchemist and Algorand
Check out the following tweet (posted by Algorand):
The tweet above shows Algorand retweeting a tweet by Twitter user, ‘@yossihasson’, where he mentions his appearance at the ‘Alchemist Blockchain techstars Accelerator’ to ‘talk all things Algorand’.
What is the ‘Alchemist Blockchain Techstars Accelerator’?
More information on that can be found here at this link: https://medium.com/@dgogel/techstars-alchemist-blockchain-accelerator-recap-of-week-3-38048d6f60d
Check out the screenshots below:
There are also curious finds like ‘Dave Younts’, an individual on LinkedIn that lists his affiliations as being a member of; ‘Coti’, ‘Paperstreet’, ‘OAC Consulting’ (founder), and ‘Algorand’:
Curiously, he is an investor in both Algorand and CasperLabs:
Arrington XRP Could Be the Connection as Well
Remember when we mentioned that CasperLabs had received approx. $15 million in funding recently?
Turns out that Arrington XRP was one of the primary drivers of Algorand as well:
Curiously, tZERO investor ‘11–11 Ventures’ was also part of the fundraise, as well as NGC Ventures (attached to the $NEO ecosystem; ran by Da Hongfei, whom is also a seed investor in Binance as well).
Without any definitive links, we can only speculative — but it is at least worth pointing out the curious coincidences that we find on our journey to unmasking what activities/investments/projects that Nerayoff was truly involved with.
Connection Between Nerayoff and Binance?
As a side note, below are some interesting plugs for ‘Chiliz’ (recently listed on Binance):
The links (and archived links) for all of the above tweets are:
As noted in the official brand Telegram, ‘Chiliz’ (and Socios) are both publicly listed at the exact same location as Binance and Tron in Malta (according to numerous public reports of Binance’s location).
Blockchain Projects That We Know Nerayoff Had His Paw Prints On
While there are some entities listed above that we merely suspect Nerayoff of being involved with based on a preponderance of evidence, there are a few blockchain projects that we know Nerayoff is intimately involved with.
Those blockchain projects are (in no specific order):
We’ve already covered Nerayoff’s involvement with Ethereum, for the most part.
His sponsorship of Casper CBC made (and still makes) Nerayoff an integral part of the Ethereum scaling roadmap. His discontinued involvement, coupled with the potential collapse of CasperLabs’ parent company (Adaptive Holdings LTD), could lead to serious issues for Casper CBC’s development going forward.
Whether this is the case or not, remains to be seen. However, it is at least worth noting that it appears the space is already attempting to dissociate themselves with Nerayoff and his affiliated entities. Curiously, it appears that Vlad Zamfir was doing the same thing just a week-and-a-half ago in the following statements:
Vlad’s statement distancing himself from CasperLabs is particularly interesting, since Vlad is the ‘Lead Architect’ of CasperLabs and his role there is to essentially develop on CBC Casper.
Thus, while he is correct in stating that the two entities/projects (CasperLabs and Casper CBC) are not one in the same, his attempt to greatly minimize his role and involvement at CasperLabs comes across as deceptive, at best.
Despite stating, ‘I don’t lead (and have never led) CasperLabs’, Vlad Zamfir cannot deny that he is in the role of ‘Lead Architect’, which strongly implies ‘lead’, just in its name.
Below is an excerpt from a report published by crpytocurrency publication, ‘The Block’, in late February (Feb 22nd, 2019), that makes it clear that Vlad Zamfir would have an extensive role at the company:
Some interesting details from the excerpt posted above:
- Vlad Zamfir willingly accepted the role of, “Lead Consensus Protocol Architect at CasperLabs — aptly-named after the protocol [Casper CBC] itself.”
- ‘The Block’ reported that they received direct confirmation from one of the co-founders of CasperLabs that Vlad Zamfir would receive a ‘multi-year, multi-million dollar commitment’, “to sponsor his research into the CBC Casper upgrade, which the firm is focused on offering as soon as possible.”
Notably, Vlad Zamfir did not issue any public statements after this article was published in late February, nearly seven months before CasperLabs received $15 million in funding.
Thus, it seems appropriate to muse on what aspect of Vlad’s relationship with CasperLabs had materially changed in such a way that he felt the need to damper down the news that his employer had received $15 million in investment to essentially continue its efforts in funding and sustaining his project.
To date, CasperLabs has not listed any other initiatives other than supporting Vlad Zamfir’s development and deploying that upgrade in a such way that could help scale the Ethereum protocol (accelerate the path to ETH2.0).
Nerayoff’s Role in Ethereum’s ICO
Even more understated than Steve’s role in assisting Ethereum with scaling, is Nerayoff’s role in Ethereum’s overall existence.
Let’s take a quick look at Steve Nerayoff’s bio on ‘techstars.com’:
Specifically, it states:
“Steven’s innovative work as the legal architect of Ethereum’s record setting token sale continues to be the basic structure used throughout the world today.”
Nerayoff Had a Bigger Role in Ethereum’s Ecosystem Than the Press Has Let On
While popular publications have listed Nerayoff as an ‘advisor’ to Ethereum, few have done him the justice of expanding upon his experience at Etheruem or his role, in specific.
Therefore, this section will be dedicated to doing just that.
If we look below, we can see that Nerayoff was a key advisor to Ethereum (as well as an investor) in its early days:
In the excerpt above, Nerayoff recalls his experience as an advisor for Ethereum and parsing out the developers that were looking to work directly with the project.
Specifically he notes that they, “Had no programs getting qualified programmers.”
Nerayoff and Lisk
Similarly, it appears that Nerayoff’s role in the Lisk ecosystem has been drastically understated as well.
Notably, Nerayoff joined the Lisk team in 2016, following his departure from Ethereum (as one of its core advisors), joining Charles Hoskinson in the exodus process and subsequent migration to the Lisk blockchain team.
The official press release announcing the onboarding of the two former Ethereum ecosystem participants can be found here: https://blog.lisk.io/lisk-adds-charles-hoskinson-steven-nerayoff-as-senior-advisors-to-facilitate-product-development-5a2260613699
Specifically, the pair were added to the protocol as “Senior Advisors” (the role of a ‘senior advisor’ in the Lisk ecosystem is currently unknown).
Steven Neyaroff and Bancor
This partnership primarily came through StormX’s announced plans for the integration of the Bancor Protocol in October 2017:
Polymath (Token Securities Platform)
This connection is perhaps one of the bigger landmines in this entire situation because of the far-reaching implications of Polymath’s involvement in the entire ordeal.
Let’s take a look at the advisors on the project:
What’s particularly interesting is that this is yet another time that we have seen Nerayoff intimately involved in a securities token-esque venture.
It seems that the primary M.O. of Nerayoff in his investment and ‘advisor’-involvement habits is to ensure that he assists with projects that present substantial to the Ethereum ecosystem, in terms of direct investment.
- For Bancor to work, substantial investment into the Ethereum ecosystem is necessary (i.e., through the ICO itself as well as via subsequent use of the launched protocol)
- For Polymath to work, substantial investment into the Ethereum ecosystem is necessary (i.e., through the ICO itself as well as via subsequent use of the launched protocol)
- CasperLabs being successful would not only lead to Ethereum ‘scaling’, but also the deployment of ‘Proof of Stake’, which would mandate greater investment into the protocol as individuals shift from mining to ‘staking’ (i.e., holding a certain amount of Ethereum) in order to receive the privilege of validating/confirming blocks and receiving a reward for it
- Security tokens, in general, present a new use case for Ethereum, which is sorely in need of one as the concept of ICOs have become substantially less viable in today’s day and age.
Global Blockchain Technologies Corp
Another entity that Nerayoff was involved in was the, ‘Global Blockchain Technologies Corp’, which later changed its name to, ‘Global Gaming Technologies Corp’.
Announcement of Nerayoff and others joining the team; https://www.marketwatch.com/press-release/global-blockchain-technologies-corp-announces-appointment-of-industry-leading-blockchain-team-2017-10-10-71423150
Announcing the name change to ‘Global Gaming Technologies Corp’ ; https://www.globenewswire.com/news-release/2019/02/07/1713669/0/en/Global-Blockchain-Technologies-Announces-Name-Change.html
Before making the name change to ‘Global Gaming Technologies Corp.’ (implying some involvment with gambling operations), the company acquired a 49.9% stake in a mining company titled, ‘Coinstream Mining Corp.’:
By January 2018, the company had successfully acquired 6.6k Antminer S9s from Bitmain Technologies Ltd. at the price of $20 million:
Curiously, the press release stated that, “The Company [Coinstream] is acquiring the equipment for investment purposes and will not be undertaking any direct cryptocurrency mining operations.”
Metaverse Capital Corp.
The company that merged with ‘Coinstream Mining Corp.’ (Global Blockchain Mining Corp.; subsidiary of Global Blockchain Technologies Corp.), acquiring a 49.9% stake of the company in exchange for some of its stock eventually changed its name to ‘Metaverse Capital Corp.’:
Below is a screenshot of the website (metaverse.capital), which is live at the time of writing:
Shifting to tZERO
Equally as important as Nerayoff’s role in CasperLabs, is/was his role in assisting the development of tZERO — which was allegedly designed to be the world’s first ‘security token exchange’.
Notably, on the ‘Alchemist’ website (remember, Nerayoff is CEO and co-founder of Alchemist as well), it states that Nerayoff, “Also set the standard by designing the seminal Security Token Offering (STO) for tZERO, the world’s first security token exchange.”
Visiting tZERO’s Offering Memorandum
There may perhaps be no better source of information on Steven Nerayoff’s exact role/involvement with the tZERO offering than the memorandum itself.
Fortunately, this can be found on the SEC’s website at this link: https://www.sec.gov/Archives/edgar/data/1130713/000110465918013731/a18-7242_1ex99d1.htm
Specifically, the excerpt above states that:
“Each of Alchemist Group LLC d/b/a Alchemist (“Alchemist”), Liquid Digital Holdings LLC (f/k/a Hyperion Holdings VII, LLC) (“Liquid Digital”), Distributed Network Advisors LLC (“DNA”), SAFTLaunch, LLC (“SAFTLaunch”) and StartEngine Crowdfunding, Inc. (“StartEngine”) are acting as advisors and/or service providers to tZERO in connection with multiple aspects of the Offering. In addition, the Company has engaged various marketing and other service providers in connection with the Offering. These parties will receive customary fees in connection with the provision of their respective services. In connection with Alchemist’s services, Steven Nerayoff and Jeff Pulver are serving as members of the tZERO Advisory Board and, in connection with DNA’s services, Brock Pierce is serving as a member of the tZERO Advisory Board. See “ — Appointment of Advisory Board.”
“ tZERO expects that approximately 2.3 million Tokens (‘Compensatory Tokens’) will be issued as compensation for advisory and other services, including as compensation to certain of the consultants and advisors identified above, to members of the tZERO Advisory Board, and as consideration for marketing, entertainment and/or other fees and expenses incurred in connection with the Offering. The Company will not generate more than 59 million Tokens in the aggregate, inclusive of tokens issued to investors pursuant to SAFEs funded by such investors with cash and/or cryptocurrency in accordance with the terms of this Memorandum (‘Purchased Tokens’), Compensatory Tokens and additional Tokens in an amount equal to 30% of Purchased Tokens to be authorized and unissued as of the Token Issuance Date (‘Reserve Tokens’).”
Notably, Nerayoff was one of just 12 individuals that were listed on tZERO’s Advisory Board:
Anthony Di Lorio
This is the second time that we are seeing Di Lorio (co-founder of Ethereum) in association with Nerayoff.
It begs the question of whether these are coincidences or if Nerayoff has a genuine, close connection with Di Lorio.
If the latter is the case, then we must ask ourselves what that means in the greater context of the Ethereum protocol’s governance and the ‘purity’ of the structure that they currently have.
As seen at the beginning of this piece, Brock Pierce’s name popped up out of the woodwork (founder of the DNA fund) in tZERO’s Form506c filing with the SEC in the same paragraph as Nerayoff’s involvement.
Matt Roszak was also an integral part of the Polymath team as well (as an advisor). Again, interesting to see that he is also involved in tZERO as an advisor.
While Patrick Byrne is not an actual part of this ICO, it is a well-known fact that tZERO is an operating subsidiary of Overstock, and thus, Patrick Byrne, by default, owns tZERO (or at least he did until he abdicated his position as CEO just 2–3 weeks ago).
Curiously, Patrick Byrne was also an advisor for Polymath.
Panning Back Out to Security Tokens
In evaluating ProgPoW and Core Scientific’s role in the Ethereum ecosystem, one fact that is absolutely worth noticing is the presence of an individual named, ‘Mitch Edwards’.
SEC Edgar Form for Core Scientific ; https://www.sec.gov/Archives/edgar/data/1733999/000173399918000004/xslFormDX01/primary_doc.xml
What’s notable is that, at the time of the offering (October 2018), Core Scientific had been in existence for less than 6 months.
Yet that didn’t stop them from obtaining high-powered/ranking executives like Mitch Edwards, whom was the former ‘Acting CEO’ for Overstock.
Mitch Edwards and Nerayoff Clearly Have a Some Sort of Working Relationship
Curiously, Mitch Edwards was described as fulfilling a pivotal role at Overstock in relation to tZERO.
Specifically, Globex’s press release on Mitch states that, “At Overstock, he oversaw the registered offering of Overstock’s preferred blockchain securities, as well as development of the tZERO digital securities exchange.”
Curiously, public reporting states that Nerayoff, “Set the standard by designing the seminal Security Token Offering (STO) for tZERO, the world’s first security token exchange.”
When juxtaposing these two roles that Mitch Edwards and Steven Nerayoff played in the development of tZERO’s protocol, respectively, it is hard to imagine that the two were not extremely familiar with one another.
After all, how would it be possible for Mitch Edwards to ‘oversee’ the ‘development of the tZERO digital securities exchange’ without at least being peripherally aware of the individual that created the standard for designing the “seminal Security Token Offering (STO) for tZERO”?
Even more notable is the fact that Steven Nerayoff was listed as an advisor on the project. Logically, Mitch Edwards (whom was tasked with overseeing the project), would have been the individual whom Nerayoff liaised with during his time advising the tZERO protocol.
More Questions About Mitch’s Role in Getting ProgPoW Accepted
Many in the blockchain space have went through great lengths to distance Kristy-Leigh Minehan (CTO of Core Scientific) from her role at Core Scientific as the Chief Technology Officer and her involvement with the creation of the ProgPoW Ethash augmentation.
In specific, many have noted the extreme conflicts of interest in Kristy-Leigh’s promotion of ProgPoW (there is substantial evidence that attests to the fact that Kristy-Leigh has and perhaps still is selling GPU miners for Ethereum via her company, ‘The Mineority Group’, whilst still pushing the idea of ‘ProgPoW’ onto the Ethereum community).
With the substantial resources at Core Scientific’s disposal, in addition to their demonstrably proven ability to leverage GPUs that are of a much higher caliber than what is commercially available, combined with the fact that less than 10% of Ethereum’s hash rate can be attributable to ASIC miners, many have called the motivation and ethics of ProgPoW’s proposal into question. Additionally, in light of the fact that less than 10% of Ethereum’s hash rate stems from ASICs, many more have questioned whether ProgPoW will effectively serve the purpose of ‘decentralizing’ mining.
However, despite these legitimate grievances, it appears that ProgPoW has been slated for inclusion in Ethereum’s next major protocol hard fork upgrade in Q1 2020 regardless.
Thus, when considering the role that Nerayoff/security tokens/Anthony Di Lorio/Brock Pierce and others play in the Ethereum ecosystem as well as the recent indictment of Nerayoff, it begs the question of whether any ‘backroom politics’ were involved in the manifestation and subsequent tentative integration of ProgPoW.