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Former Ethereum Advisor Claims Government Wrongdoing in a $9.6 Billion Lawsuit

Nerayoff files notice of intent to sue U.S. government over "fabricated" charges

Steven Nerayoff, an early adviser to the Ethereum network, has taken the first steps towards suing the U.S. government for $9.6 billion in damages related to his 2019 arrest on criminal extortion charges. Nerayoff and his legal team allege that the charges were "fabricated" and "baseless," and that he was the victim of an elaborate setup by the Federal Bureau of Investigation (FBI).

Key takeaways:

  • Steven Nerayoff intends to sue the U.S. government for $9.6 billion.
  • Nerayoff claims he was set up by the FBI and subjected to coercive tactics.

Nerayoff has filed a Federal Tort Claims Act (FTCA) form, which is a prerequisite to filing a lawsuit against the Department of Justice (DOJ). The FTCA requires claimants to notify the involved agencies of their intention to sue at least six months before a formal lawsuit is filed. The extortion charges against Nerayoff were dropped in May 2023, with prosecutors admitting they had obtained exculpatory evidence and were unable to prove the charges beyond a reasonable doubt.

Nerayoff has retained well-known civil liberties lawyer Alan Dershowitz as a consultant on constitutional issues for the case. Dershowitz confirmed his involvement on Wednesday.

Allegations of an FBI setup and questionable tactics

According to Nerayoff and his lawyers, he was the target of a years-long setup by the FBI, with the ultimate goal of pressuring him to provide evidence against prominent figures in the cryptocurrency industry. Nerayoff claims that on September 17, 2019, he was arrested by a dozen armed FBI agents and subjected to hours of interrogation in an unmarked van outside his home. He alleges that the agents threatened him, stating that he would "not see his young minor children grow old" unless he cooperated by providing them with information.

The government has denied most of Nerayoff's claims, including the assertion that his former colleague and co-defendant on the extortion charges, Michael Hlady, was a government informant. Nerayoff's legal team maintains that Hlady, who was previously convicted of defrauding Catholic nuns out of nearly $400,000 in 2010, was "insinuated ... into [his] orbit" by the FBI to help build a case against Nerayoff.

In 2021, Hlady pleaded guilty to the extortion charges that Nerayoff was also tied to. However, last month, the government moved to drop the charges against Hlady, allowing him to withdraw his guilty plea and instead plead guilty to a single count of wire fraud in an unrelated scheme he committed while out on bond.

As Nerayoff moves forward with his lawsuit against the U.S. government, the case is likely to shed light on the alleged tactics employed by federal investigators and prosecutors in their pursuit of cryptocurrency industry figures.