Steven Nerayoff alleges US firm negligently handled his defence in a federal criminal case
Lawyer Steven Nerayoff filed a legal malpractice complaint seeking damages of at least US$100 million for Covington & Burling LLP’s actions that allegedly led to a prolonged legal battle, economic loss, and the loss of future business opportunities.
Nerayoff, the plaintiff in this case, is founder and chief executive officer of Alchemist Creations, LCC, a consultancy, accelerator, and investment firm for blockchain companies. He was also involved in developing the Ethereum blockchain and was credited with inventing the utility token and the initial coin offering model, which has since been widely used in the cryptocurrency sector.
In his filing with the New York County Supreme Court, the plaintiff argued that the U.S.-based multinational law firm negligently handled his defence in a federal criminal case by failing to timely present exculpatory evidence. The firm’s negligence led to litigation that lasted three years long and over US$1 million in legal fees, he claimed.
The firm and its attorneys failed to act with the ordinary degree of skill commonly exercised by a member of the legal community, which directly caused the damages suffered, the plaintiff said. He lost crypto-related contracts after being labeled an extortionist, his complaint added.
Facts of alleged malpractice
In September 2019, federal authorities arrested the plaintiff and charged him with extortion and conspiracy in relation to his business dealings with StormX, a Seattle-based technology company.
The plaintiff retained Covington & Burling to represent him in the pre-indictment phase of the criminal proceeding. Insisting that he was innocent of the charges, he showed his lawyers exculpatory evidence consisting of videos, emails, and other messages to prove the legitimacy of his business dealings with StormX.
The plaintiff claimed that his legal representation advised him against meeting with prosecutors and presenting the exculpatory evidence to them, which allegedly could have prevented his indictment. He further claimed that his counsel’s strategy apparently focused on taking the case to trial, which would require a separate engagement and fees potentially amounting to millions of US dollars.
In January 2020, the Covington & Burling lawyers informed the plaintiff that they would be withdrawing from their representation since he had only retained them for the pre-indictment phase. A grand jury in New York’s Eastern District indicted him that same month.
In June 2022, the plaintiff’s new legal counsel began communicating with prosecutors and presented the same evidence available to Covington & Burling in 2019. In March 2023, prosecutors moved to dismiss the charges against the plaintiff. They acknowledged the existence of “material exculpatory evidence” uncovered only after the indictment.
A U.S. District Court judge for New York’s Eastern District dismissed the charges against the plaintiff with prejudice in May 2023.
