Former Ethereum Adviser Intends to Sue U.S. Government for $9.6B Over Dropped Extortion Charges

• Steven Nerayoff, a former adviser to the Ethereum network, is seeking $9.6 billion in damages from the U.S. government stemming from a 2019 case against him that was later dropped.

• Lawyers for Nerayoff allege their client was framed by the FBI and federal prosecutors in order to get him to turn over evidence on high-profile people in the crypto industry.

Steven Nerayoff, an early adviser to the Ethereum network, has filed a notice of his intent to sue the U.S. government for $9.6 billion in damages connected to his 2019 arrest on criminal extortion charges, which his lawyers called “fabricated” and “baseless.”

Nerayoff’s Federal Tort Claims Act (FTCA) form, which was provided to CoinDesk by his lawyers, is the first step towards filing a lawsuit against the Department of Justice (DOJ). In FTCA cases, the agencies involved must be notified of the claimant’s intention to sue at least six months before a lawsuit is formally filed.

Well-known civil liberties lawyer Alan Dershowitz confirmed Wednesday that he will serve as a consultant on constitutional issues for Nerayoff’s case.

The government’s charges against Nerayoff were dropped in May 2023. Two months earlier, prosecutors moved to end the case, admitting that they had obtained material exculpatory evidence and were unable to prove the charges in the indictment beyond a reasonable doubt. Nerayoff’s lawyers had, before that, filed a motion to dismiss that was chock-full of explosive claims against the federal investigators and prosecutors involved in the case.

Nerayoff and his lawyers say that he was the victim of an elaborate, years-long setup by the Federal Bureau of Investigation (FBI) with the ultimate intention of getting him to turn over evidence on important figures in the crypto industry.

The FBI did not respond to CoinDesk’s request for comment by the time of publication.

On the morning of Sept. 17, 2019, Nerayoff claims he was arrested by a dozen gun-wielding FBI agents and interrogated for “hours” in an unmarked van parked outside his home. According to Nerayoff, the agents told him he would “not see his young minor children grow old” unless he cooperated by giving them information.

The government denied the majority of Nerayoff’s claims in a filing of its own, including the assertion that Nerayoff’s colleague and former co-defendant on the extortion charges, Michael Hlady, was a government informant. Nerayoff’s lawyers maintain that Hlady, who was convicted of swindling Catholic nuns out of nearly $400,000 in 2010, was “insinuated … into [his] orbit” by the FBI, in order to help them build a case against Nerayoff.

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