Steven Nerayoff: StormX Extortion Case, Dismissal, and FTCA Suit

Steven Nerayoff is an attorney, entrepreneur, and early advisor to the Ethereum project who was arrested in September 2019 on federal extortion charges, saw those charges dismissed with prejudice in May 2023 after prosecutors said they could not prove the case, and is now pursuing a $9.6 billion Federal Tort Claims Act lawsuit against the United States government over what he alleges was a fabricated prosecution.

Legal and Business Background

Nerayoff holds a law degree and an LL.M. and began his career at Orrick, Herrington & Sutcliffe, working on technology, mergers and acquisitions, structured finance, and corporate matters. He went on to found several companies, including Offer.com and Freedom Eldercare, the latter acquired by Webster Capital in 2008.¹

In 2010 he founded CloudParc, Inc., a smart-city technology company whose patent portfolio grew to more than 40 issued and pending U.S. and international patents in autonomous tracking, parking management, and unmanned aerial vehicles.²

Early Advisor to Ethereum

In late 2014, Ethereum co-founder Vitalik Buterin asked Nerayoff to conduct a diagnostic assessment of the project and recommend a path forward. Most of that work happened in early 2015, before the Ethereum genesis block was mined. Nerayoff urged Buterin to replace most of the project’s leadership, order an independent audit, and stand up a for-profit entity backed by venture capital. In one 2015 meeting he told Buterin that “virtually everybody needs to go,” and separately warned him, “I am fairly convinced that securities laws and these other laws have been tripped.”³

He later founded Alchemist Creations, LLC, a blockchain consultancy and accelerator that worked with entrepreneurs launching initial coin offerings.⁴

The StormX Extortion Charges

Beginning in May 2016, Nerayoff served as “chief strategist” for StormX, a Seattle cryptocurrency loyalty-rewards startup. A July 2017 contract entitled him to 22.5% of funds and tokens raised in the company’s ICO. The November 2017 ICO raised 75,677 ETH, which put his contractual share at roughly 17,000 ETH.⁵

Federal prosecutors alleged the relationship turned into extortion. According to the government, Nerayoff demanded compensation well beyond the contract and threatened to sabotage the ICO and “destroy” the company if he was not paid. Prosecutors said he retained 13,000 ETH beyond his contractual share through a coerced second contract, demanded an additional roughly $8.75 million in Ether, and later demanded a 10,000 ETH “loan” — worth about $4.45 million at the time — that was never repaid.⁵⁶

Nerayoff’s co-defendant, Michael Hlady, was described by the government as an enforcer who falsely claimed ties to the IRA, NSA, CIA, and FBI, boasted of killings, and sent threatening messages to StormX executives, including a reference to the location of the chief operating officer’s child’s school.⁶⁷ Both men were arrested on September 18, 2019 in the Eastern District of New York, and a grand jury returned a four-count indictment against Nerayoff on January 10, 2020. He pleaded not guilty on January 22, 2020.⁸

Nerayoff’s defense argued that StormX in fact owed him money under the contract and had reported him to federal authorities to avoid paying.⁷ Hlady later pleaded guilty to conspiring to extort StormX in April 2021.⁹

Allegations of FBI Misconduct and Dismissal of Charges

Nerayoff’s defense team raised sweeping allegations against the government. His attorneys said the FBI “knowingly pursued false charges” to pressure him into providing incriminating information about others in the cryptocurrency industry. According to the defense, on the day of his arrest agents placed Nerayoff in an unmarked van and presented a clipboard listing hundreds of industry figures, including Vitalik Buterin and Caitlin Long, asking him to produce “dirt” on them in exchange for leniency.¹⁰

The defense also alleged that Hlady had effectively acted as an FBI informant before the arrests, pointing to 100 text messages and 45 phone calls between Hlady and the investigating agent. The Department of Justice denied that Hlady was an informant but acknowledged the communications.¹⁰

On March 20, 2023, federal prosecutors moved to dismiss the indictment, stating they had obtained “material exculpatory evidence” and were “unable to prove the charges in the Indictment beyond a reasonable doubt.”¹¹ On May 5, 2023, Chief Judge Margo K. Brodie granted the motion and dismissed the charges with prejudice, foreclosing any refiling.¹²

The Buterin Recordings and ETHgate Claims

In November 2023, Nerayoff publicly released audio of his 2015 conversations with Buterin. On the recordings, he can be heard urging restructuring of the Ethereum Foundation, warning that the project’s fundraising had likely tripped securities laws, and suggesting the group needed to keep the price of Ether “above par” to reduce regulatory risk.¹³

Nerayoff has framed the release as evidence supporting “ETHgate,” a theory that Ethereum received preferential regulatory treatment from the SEC. He has publicly accused Buterin, Ethereum co-founder Joe Lubin, and the Ethereum Foundation of misconduct, and claimed to hold evidence of fraud he has compared to the FTX scandal. Former Ethereum co-founder Charles Hoskinson said the recording showed how close the project came to failure but cautioned against accepting one-sided narratives.³ The broader fraud allegations against Ethereum’s founders remain unsubstantiated in the reporting.

Lawsuits After the Dismissal

Malpractice Suit Against Covington & Burling

In September 2024, Nerayoff filed a $100 million legal malpractice suit in New York County Supreme Court against Covington & Burling, his original defense counsel. The complaint alleged that Covington attorney Alan Vinegrad advised him not to present exculpatory videos, emails, and messages to prosecutors before indictment, and that the resulting three-year prosecution cost him more than $1 million in legal fees and lost business.¹⁴⁴ Covington called the suit meritless.

On November 25, 2025, Judge Mary V. Rosado granted Covington’s motion to dismiss the amended complaint, finding the claims amounted to a “mere disagreement over the timing to present allegedly exculpatory evidence” and that the firm’s advice was not unreasonable.¹⁵

$9.6 Billion FTCA Suit Against the Government

In April 2025, Nerayoff and CloudParc filed a $9.6 billion suit against the United States and an FBI agent under the Federal Tort Claims Act in the Eastern District of New York (Case No. 1:25-cv-02012). The complaint alleges that federal agents fabricated evidence, withheld exculpatory material, and pursued a four-year campaign they knew was baseless.¹⁶ Nerayoff says the prosecution drove away business partners and cost him billions in potential earnings during a cryptocurrency bull market, including hundreds of millions in consulting contracts.¹⁷

Meister Seelig & Fein PLLC is representing Nerayoff, with attorney Stephen B. Meister leading the case. Alan Dershowitz is advising in a consulting capacity and has called the matter “one of the worst abuses of prosecutorial and governmental power I’ve seen in my career.”¹⁶²

The government filed its answer to the amended complaint in April 2026, and the case is in discovery, with a fact discovery deadline of September 8, 2026 and all discovery due by November 12, 2026. A dispute over the government’s return of Nerayoff’s seized cell phone and computer has been referred to Magistrate Judge Joseph A. Marutollo.¹⁸

1
Reboot Communications. Steven Nerayoff
2
Yahoo Finance. Tech Visionary Steven Nerayoff Partners With Major NY Law Firm
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CCN. ETHgate: Who Is Steven Nerayoff
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Canadian Lawyer Magazine. Blockchain Investor and Lawyer Files US$100 Million Malpractice Suit Against Covington & Burling
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GeekWire. Cryptocurrency Extortion Scheme Targeted Seattle Startup StormX
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U.S. Department of Justice. Two Arrested for Extortion of Startup Cryptocurrency Company
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Governing. At Peak Bitcoin, Consultant Extorted $8M From Seattle Crypto Startup
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CourtListener. United States v. Nerayoff
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U.S. Department of Justice. Individual Pleads Guilty in Brooklyn Federal Court to Extorting Cryptocurrency Startup
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CoinDesk. U.S. Prosecutors Drop Extortion Charges Against Early Adviser to Ethereum Network
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Yahoo Finance. U.S. Prosecutors Drop Extortion Charges
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GovInfo. USA v. Nerayoff et al
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CoinGeek. Ethereum Co-Founders Knew ETH Was a Security From the Get-Go, Insider Says
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New York Law Journal. Covington Hit With Crypto Inventor’s Legal Malpractice Suit Seeking $100M
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Justia Law. Nerayoff v. Covington & Burling LLP
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Yahoo Finance. AI Crypto Visionary Steven Nerayoff Files $9.6 Billion FTCA Lawsuit
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The Block. Former Ethereum Advisor Steven Nerayoff Sues US Government for $9.6 Billion
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PACER Monitor. Nerayoff v. The United States of America et al