• 26 May, 2024

U.S. DOJ Arrests Two Brothers in A $25M Ethereum Exploit

Two brothers have been charged with wire fraud and money laundering for allegedly exploiting a vulnerability in the Ethereum blockchain, stealing $25 million in cryptocurrency in just 12 seconds. This is the first time in history that two brothers, Anton Peraire-Bueno, 24, and James Peraire-Bueno, 28, have been charged with a criminal action related to maximal extractable value (MEV).

The U.S. Department of Justice revealed the charges in an indictment unsealed on Wednesday. The indictment accuses the brothers of manipulating transactions using MEV-boost, an MEV software employed by Ethereum validators. MEV-boost allows block builders to assemble transactions into blocks for validation. By exploiting a bug in the MEV-boost code, the brothers allegedly gained access to the contents of blocks before they were finalized.

U.S. Attorney Damian Williams said, 

This alleged scheme was novel and has never before been charged. But as the indictment makes clear, no matter how sophisticated the fraud or how new the techniques used to accomplish it, the career prosecutors of this office will be relentless in pursuing people who attack the integrity of all financial systems

In addition, Deputy Attorney General Lisa Monaco emphasized the DOJ’s commitment to addressing cryptocurrency-related fraud. She stated, “As cryptocurrency markets continue to grow, the Department will continue to root out fraud, support victims, and restore confidence to these markets.”

Federal prosecutors in Manhattan described the scheme as meticulously planned. The brothers, graduates of the Massachusetts Institute of Technology (MIT) with expertise in computer science and mathematics, created 16 Ethereum validators. They targeted three specific traders using MEV bots, luring these bots with bait transactions to their validators. This allowed them to manipulate the trades by inserting tampered transactions, ultimately stealing $25 million in cryptocurrency.

The indictment outlines how the brothers used their validators to front-run MEV bots, replacing legitimate transactions with their own. Victim traders were tricked into buying illiquid cryptocurrencies, rendering their new assets effectively worthless. The $25 million stolen in stablecoins and other cryptocurrencies were then laundered through various transactions, including conversions to DAI and USDC.

The investigation revealed extensive planning, including setting up shell companies, conducting test transactions, and researching cryptocurrency exchanges with lax KYC procedures. The brothers even looked into extradition procedures, highlighting the depth of their preparation.

“This case shows the lengths to which criminals will go to exploit technological vulnerabilities,” said Special Agent in Charge Thomas Fattorusso of the IRS-Criminal Investigation New York Field Office.
Anton Peraire-Bueno was arrested in Boston, while James Peraire-Bueno was apprehended in New York. Both are expected to appear in federal court. If convicted, they face up to 20 years in prison for each count of wire fraud and money laundering.

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