Two brothers who studied at the Massachusetts Institute of Technology (MIT) were arrested on Wednesday on charges related to an innovative scheme involving Ethereum’s blockchain that resulted in a $25 million profit in just 12 seconds.
Anton Peraire-Bueno, 24, and James Peraire-Bueno, 28, are accused of orchestrating a fraud scheme that federal prosecutors in Manhattan have called “novel,” marking the first criminal charges of this kind in the U.S. U.S. Attorney Damian Williams emphasized the seriousness of the alleged scheme in a press release by the Office of Public Affairs:
As we allege, the defendants’ scheme raises doubts about the integrity of the blockchain.
The brothers, who majored in computer science and math at MIT, are facing charges of conspiracy to commit wire fraud and conspiracy to commit money laundering.
An intricately planned operation
According to the indictment, the Peraire-Bueno brothers spent months devising a plan to manipulate the Ethereum blockchain’s transaction validation protocols. They exploited a middleware known as MEV-boost, commonly used by Ethereum network validators who validate new transactions before adding them to the blockchain.
The conspirators created a series of Ethereum validators, enticed MEV bots with bait transactions, and exploited a vulnerability in MEV-boost to release escrow content prematurely. Following the successful execution of the scheme, the brothers allegedly refused to return the funds and took steps to launder and hide the stolen cryptocurrency.
This development comes after the U.S. Securities and Exchange Commission (SEC) sought comments on three Ethereum spot exchange-traded fund (ETF) proposals from Grayscale Investments, Fidelity, and Bitwise in early April. In early May, a similar product was launched in Hong Kong.
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