Trial continues for brothers accused of $2M crypto theft

5 hours ago 2

Homepage
>
News
>
Business
>
Trial continues for brothers accused of $2M crypto theft

Prosecutors have rested their case against two Massachusetts Institute of Technology (MIT) grads on trial for using software exploits to steal $25 million from the Ethereum blockchain, in what the Department of Justice (DOJ) has called the ‘first-of-its-kind’ digital asset heist.

Antone and James Peraire-Bueno were arrested in May of 2024 for conspiracy to commit wire fraud, wire fraud, and conspiracy to commit money laundering.

According to the prosecution’s case, the brothers relied on the behavior of MEV bots, which are widely used to identify transactions in a mempool that may move the market or otherwise create an arbitrage opportunity. The operators of the bots then arrange transactions in a block in a way that allows the operator to profit.

An easy example of this would be a MEV bot identifying a large transaction in the mempool, which will move the price of a given asset. The operator will then frontrun that transaction by making their own (such as to sell the asset whose price is about to be impacted) and ensuring their transaction comes first in the block.

The Peraire-Bueno brothers created ‘bait’ transactions to lure MEV bots into frontrunning their trades. They then exploited a vulnerability in the relay being used in order to trick it into revealing the operators’ planned frontrun strategy before it had been validated by the network. As the brothers were Ethereum validators, they were then able to quickly constitute a block, which essentially stole the operators’ strategy and took the profits for themselves. By the time the operators’ original blocks were validated, the strategy was already out of date.

The brothers left a comprehensive paper trail of their activities, according to the published indictment and the prosecution’s case. This included outlining their four-stage exploit plan in a shared document. They also spent the weeks following the heist googling things such as “crypto lawyers,” “how long is the statue [sic] of limitations,” “wire fraud statue [sic] of limitations,” and “money laundering statue [sic] of limitations.”

The brothers laundered the proceeds by converting them to various stablecoins and then sending them to a smart contract that effectively operates as a decentralized blockchain protocol that allows users to borrow and lend the stablecoins, ostensibly making their movements more difficult to trade.

Though the press around the indictments and trial have described the brothers’ actions as a “heist,” it’s hard to fit their actions within traditional understandings of theft. That’s presumably why the charges focus on wire fraud and money laundering.

With the prosecution having made its case, the defense now takes over. The Peraire-Bueno brothers’ argument has been that the brothers were simply executing a legitimate trading strategy based on the normal operation of the Ethereum blockchain.

However, the prosecution focused on the searches made by the brothers before and after the attack as evidence that the brothers knew they were breaking the law.

The trial is set to conclude next week.

Watch: Breaking down solutions to blockchain regulation hurdles