United States v. Nerayoff

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UNITED STATES OF AMERICA, v. STEVEN NERAYOFF, Defendant.

No. 20-CR-008 (MKB)

United States District Court, E.D. New York

May 5, 2023

MEMORANDUM & ORDER

MARGO K. BRODIE UNITED STATES DISTRICT JUDGE

On January 10, 2020, a grand jury returned an Indictment against Defendant Steven Nerayoff, charging him with one count of Hobbs Act extortion conspiracy, two counts of Hobbs Act extortion in violation of 18 U.S.C. §§ 1951(a), 2 and § 3551 et seq., and one count of conspiracy to transmit interstate communications with intent to extort in violation of 18 U.S.C. § 875(d).^[1] (Indictment ¶¶ 1-4, Docket Entry No. 30.)

On February 13, 2023, Nerayoff moved to dismiss the Indictment with prejudice and for other relief, arguing the Court should dismiss the Indictment pursuant to Rule 12(b) of the Federal Rules of Criminal Procedure because it is based upon materially false testimony submitted to the grand jury. (Def Nerayoff Mot. to Dismiss (“Nerayoff Mot.”) 1 Docket Entry No. 105.) On March 20, 2023, the Government opposed Nerayoff's motion to dismiss, but submitted its own motion to dismiss with prejudice. (Gov't Mem. of Law in Opp'n to Nerayoff Mot. (“Gov't Opp'n”), Docket Entry No. 112.)

On March 28, 2023, Nerayoff filed a motion to vacate the protective order he signed prior to receiving discovery in the case, arguing that he should be allowed to retain copies of the discovery material provided by the Government for use in a subsequent civil proceeding. (Nerayoff Mot. to Vacate Protective Order (“Nerayoff Mot. to Vacate”) Docket Entry No. 117.)

For the reasons discussed below, the Court denies Nerayoff's motion to dismiss, grants the Government's motion to dismiss the Indictment with prejudice, and denies Nerayoff's motion to vacate the protective order.

I. Background

a. Factual background

Nerayoff, a resident of Great Neck, New York, located within the Eastern District of New York,^[2] (Compl. ¶ 3, Docket Entry No. 1), was an attorney, founder, and Chief Executive Officer of Alchemist, LLC (“Alchemist”), a company that purported to be a “leading consultancy, accelerator and investment firm for high-potential blockchain companies.” (Id.) Nerayoff also controlled the Maple Ventures LLC (“MV”) and the SDN LTD (“SDN”) entities. (Id.) Hlady, also known as “Michael Peters,” was a resident of Hicksville, New York and was hired by Nerayoff as a consultant to Alchemist and to perform functions similar to a Chief Operations Officer. (Id. ¶ 4.) Hlady used the alias “Michael Peters” and “[a]t various times, he also falsely claimed to be a former member of the United States military and a former government agent” who worked for various federal law enforcement agencies. (Id.) Company 1 is a mobile-based business that “specializes in generating user traffic to clients' products by issuing rewards in the form of cryptocurrency tokens” and is headquartered in Seattle, Washington. (Id. ¶ 5.)

On or about July 22, 2017, John Doe and Jane Doe, respectively Chief Executive Officer and Chief Operating Officer of Company 1, signed an agreement with MV “to revise Company 1's whitepaper,” “add advisors and strategic partnerships for Company 1 to ensure a successful crowdsale,”^[3] “source and curate pre-seed funding from ‘strategic partners in the blockchain community,'” among other things (the “July 2017 Agreement”). (Id. ¶ 13.) The Complaint alleges that after MV and Company 1 signed the July 2017 Agreement, Defendants “took various actions to threaten John Doe, Jane Doe, and Company 1 in order to extract additional compensation without promising or rendering any additional services.” (Id. ¶ 14.)

Company 1's crowdsale was scheduled to begin on November 7, 2017, but during the week leading up to it, Nerayoff and a co-conspirator “demanded that Company 1 agree to let MV keep 30,000 ETH (worth approximately $8.75 million on November 7, 2017) that it had been holding from the pre-sales.”^[4] (Id. ¶¶ 15, 17.) Nerayoff allegedly threatened to “sabotage the crowdsale, generate negative press for Company 1 and use his contacts with influential people to ‘destroy' Company 1.” (Id. ¶ 17.)

On or about November 6, 2017, Nerayoff “sent an email to John Doe and Jane Doe, with the subject line, ‘Please sign ASAP.' and attached two agreements that sought to provide additional compensation to Nerayoff.” (Id. ¶ 18.) The next day, Jane Doe and Nerayoff executed the two agreements (the “November 2017 Agreements”). (Id.) The first agreement provided that Nerayoff would be entitled to “1.35 billion of Company 1's tokens and 30,000 ETH,” in addition to “900 million Company 1 tokens two years after the token sale,” among other things. (Id. ¶ 19.) The second agreement provided that “Company 1 ‘[d]irects Nerayoff to transfer [30,000 ETH or the equivalent in cryptocurrencies] to the persons listed on Schedule A hereof upon completion of the Crowdsale,” but the only individual or entity listed on Schedule A was SDN. (Id. ¶ 20 (alterations in original)).

On or about and between November 7, 2017 and December 8, 2017, Company 1's crowdsale “raised approximately another 20,000 ETH for Company 1,” for a total of approximately 75,677 ETH during the pre-sale and crowdsale periods. (Id. ¶ 21.) Pursuant to the July 2017 Agreement, Nerayoff would have received approximately 17,027 ETH, but as a result of the November 2017 Agreements, Nerayoff kept 30,000 ETH. (Id.) Nerayoff also “demanded 1 billion of the unsold tokens” from the crowdsale “before revising his demand to 350 million tokens.” (Id. ¶ 22.)

In approximately March of 2018, Nerayoff allegedly “demanded that Company 1 give him a purported loan for 10,000 ETH” and introduced Hlady to John Doe and Jane Doe as his “‘operations guy,' whom they should view as the president of Alchemist.” (Id. ¶ 23.) Nerayoff told John Doe and Jane Doe that Hlady was a “former government agent” and Hlady told Jane Doe that he had “shot at and had killed people,” “had ‘taken down' a head of state,” and “had been a part of the Irish Republican Army, the National Security Agency, the Central Intelligence Agency and the Federal Bureau of Investigation.” (Id.)

Between March 20, 2018 and March 23, 2018, Jane Doe visited Defendants at Nerayoff's home in Great Neck. (Id. ¶ 24.) On or about March 22, 2018, Defendants allegedly walked into the room where Jane Doe was sleeping and “threatened to ‘destroy' both her and Company 1 if Company 1 did not provide [Nerayoff] with money and virtual currency.” (Id. ¶¶ 24-25; Indictment ¶ 5(a).) On other occasions, Defendants allegedly “made additional threats to Jane Doe and John Doe” including Hlady telling Jane Doe he “was aware of her work-related issues at a different company, and knew where her child went to school.” (Compl. ¶ 26.) Defendants also “threatened to expose Company 1 to potential litigation.” (Id.) On or about March 27, 2018 or March 28, 2018, Hlady sent Jane Doe a message while he was at John F. Kennedy International Airport regarding the loan and demanded she “fix this by the time [his flight] land[s] or I promise I will destroy your community . . . we will go public with [Nerayoff's] holding . . . we will sell and get everyone we know to sell . . . we will sue you . . . a story will be written about [Company 1]” among other things. (Id. ¶ 27.) Between March 28, 2018 and April 1, 2018, John Doe “instructed a Company 1 employee to transfer 10,000 ETH” to Nerayoff as a loan in response to these threats. (Id. ¶ 28.)

Nerayoff allegedly “also made clear to Jane Doe that he wanted to acquire Company 1.” (Id. ¶ 29.) On or about May 10, 2018, Nerayoff wrote an email to Hlady and a co-conspirator stating, “[w]e are acquiring them and going to make them f[**]king rich as hell and [Jane Doe] 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.” (Id.) On approximately May 15, 2018, John Doe and Jane Doe attended a meeting with Defendants and a co-conspirator in New York City during which Nerayoff allegedly “confirmed that he knew of [Hlady's] threat to ‘destroy' Company 1,” and “one of [Nerayoff's] employees stated that they were running an ‘intervention' with [Nerayoff], and that with exception of [Nerayoff], they were not ‘ganging up' on Jane Doe and John Doe.” (Id. ¶ 30.)

b. Procedural background

On October 18, 2019, Magistrate Judge Vera M. Scanlon approved a protective order in this case on consent of the Government, Nerayoff, and Hlady (the “Protective Order”). (Protective Order, Docket Entry No. 21.) The Protective Order provided that “any information produced in [this] case that contains the name or voice of the victims (referred to as John Doe and Jane Doe in the complaint) or that could be used to discern the victims' identities, including but not limited to audio recordings (as well as draft transcripts thereof), reports and affidavits (collectively, the “Protected Materials”) may not be disseminated beyond the defendants, their attorneys and their attorneys' legal staff.” (Id. at 1.) In addition, the Protective Order provided that “defendants, their attorneys and their attorneys' legal staff shall not make additional copies of the Protected Materials or show the Protected Materials to any other person,” and “the Protected Materials shall be returned to the government at the conclusion of this case.” (Id. at 12.)

On January 10, 2020, a grand jury returned an Indictment against Nerayoff, charging him with one count of Hobbs Act extortion conspiracy, two counts of Hobbs Act extortion in violation of 18 U.S.C. §§ 1951(a), 2 and § 3551 et seq. and one count of conspiracy to transmit interstate communications with intent to extort in violation of 18 U.S.C. § 875...