During a high-stakes hearing in New York on Friday, a lawyer for James Peraire-Bueno likened his $25 million scheme, which exploited crypto trading bots, to that of Mango Markets foe Avraham Eisenberg.
Like Eisenberg, Peraire-Bueno made millions when he took advantage of a design flaw in crypto software, the attorney said. And, like Eisenberg, Peraire-Bueno should be acquitted, he added.
Prosecutors have charged Peraire-Bueno and his brother Anton Peraire-Bueno with wire fraud, as well as conspiracy to commit wire fraud, launder money, and receive stolen property.
But a month-long trial ended last November with a hung jury.
Prosecutors want a retrial, which could begin later this year. But the brothers have asked the judge to toss all charges, arguing the government never presented enough evidence to secure a conviction.
Friday’s hearing was scheduled to settle the brothers’ request. Judge Jessica Clarke said she would issue a ruling on the matter before potentially scheduling a new trial, which would not begin before November.
The case is highly technical, covering the complex market that determines how pending transactions are ordered and settled on Ethereum.
Still, it’s the latest criminal case to seize the attention of US advocates of decentralised finance.
Crypto think tank Coin Center has called the brothers’ prosecution a “radical” attempt to “impose a novel and alien code of conduct” on Ethereum validators, the people running the software that powers the $88 billion network.
A conviction would “massively chill public participation in these innovative systems,” Coin Center wrote in a letter to the court last year. The DeFi Education Fund has also submitted a letter to the court arguing for the brothers’ acquittal.
‘Attacking Ethereum’
In 2024, the MIT-educated brothers were accused of “attacking Ethereum” and stealing $25 million from three traders.
The scheme was a classic bait-and-switch. It took advantage of the three traders’ MEV bots — Ethereum-based, automated trading programmes that scan the blockchain seeking profitable opportunities to front-run pending transactions.
The complicated scheme began when the brothers created more than a dozen Ethereum validators.
When one was selected to add a new block to the network, the brothers quickly proposed a “bait transaction” meant to trick the MEV bots into buying $25 million in illiquid crypto.
The bots expected to be able to buy, and then quickly sell the crypto at a profit.
Instead, the brothers were able to trick another component of the Ethereum block-building system known as MEV-boost into revealing the contents of the pending block.
That allowed the brothers to “tamper” with the block, changing the bait transaction from a purchase into a sell order, according to their indictment. That effectively put $25 million in stablecoins and other cryptocurrencies into the brothers’ pockets, leaving the bots holding the illiquid crypto.
Finally, the re-ordered block was added to Ethereum, sealing the transaction on an immutable ledger.
In the courtroom
The debate in the courtroom on Friday focused on the wire fraud charge and, specifically, whether a proposed transaction, such as the bait transaction, amounted to a “promise.”
Prosecutors argued switching the bait transaction from a purchase to a sale was a deception, as was the brothers’ use of a so-called invalid signature — the move that tricked MEV-boost into revealing the contents of the block that contained the bots’ orders.
James Peraire-Bueno’s attorney, Patrick Looby, disputed this.
“There was nothing in the lure transactions themselves that made a promise about that relative order” of transactions in the block, he told Judge Clarke.
Looby pointed to last year’s acquittal of Eisenberg, who had tricked the DeFi protocol Mango Markets into letting him borrow millions of dollars in crypto against nearly worthless collateral.
The judge in that case acquitted Eisenberg of his fraud charge, in part because the trader had merely taken advantage of a flaw in Mango’s design, and the service lacked any terms that forbade his behaviour.
Similarly, Ethereum and MEV-boost lack any terms of service, Looby said.
“What about the slashing penalty itself?” Clarke asked, referring to a penalty the brothers incurred when they submitted the invalid signature. “Does that operate like a rule?”
No, Looby shot back — it was merely a “disincentive.”
‘Deception, tricks’
Assistant US Attorney Danielle Kudla said it was up to jurors to decide whether the brothers had defrauded traders on Ethereum.
Whether there were terms of service was beside the point, she continued. Nearly every step the brothers took was done to trick the bots.
“This case has always been about deception, tricks, misrepresentations on the blockchain,” she said.
The bait transactions were designed to lure those specific bots, according to the prosecutor. At trial, the bots’ owners said they would not have allowed the programmes to execute those fateful transactions had they known what would happen next.
While MEV-boost didn’t have terms of service, it did have specifications stating the software was designed to prevent validators from modifying blocks. Moreover, MEV-boost creator Flashbots rushed to fix the bug that allowed the invalid signature, pushing a patch within 24 hours of the incident.
That made the case very different from Eisenberg’s, Kudla said. And prosecutors have appealed the judge’s decision to acquit Eisenberg, she added, suggesting courts have a ways to go before settling debates around blockchain-based fraud.
Tornado Cash co-founder Roman Storm has a similar motion for acquittal pending in the same court. His hearing is in April.
Aleks Gilbert is DL News’ New York-based DeFi correspondent. Have a tip? You can reach him at [email protected].
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