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Justice Department charges MIT brothers with $25 million crypto theft that took 12 seconds

In Business
May 15, 2024

The Department of Justice on Wednesday announced the indictment of two brothers who had attended the Massachusetts Institute of Technology for allegedly stealing $25 million in cryptocurrency within roughly 12 seconds.

The DOJ said the brothers, Anton Peraire-Bueno and James Peraire-Bueno, plotted the “first-of-its-kind” crypto fraud involving Ethereum blockchain over several months.

The men are the sons of Jaime Peraire, who is the H.N. Slater Professor in Aeronautics and Astronautics at MIT. Peraire previously served as the head of the school’s Department of Aeronautics and Astronautics.

“We are in shock, we don’t even know what’s going on,” Jaime Peraire told CNBC when contacted at his home in Massachusetts, and asked about the arrest of his sons. He declined to comment further.

Prosecutors said that the brothers allegedly identified a vulnerability in the Ethereum blockchain that allows outsourced bots to identify the most valuable pending crypto transactions before adding them to the blockchain, according to the indictment.

They then allegedly posed as the Ethereum validators that use those bots and redirected the pending transactions to steal the $25 million, the indictment said. Foreign law enforcers allegedly froze roughly $3 million of those funds, but the two men converted the unfrozen money to the DAI crypto token, which is pegged to the U.S. dollar, the DOJ said.

The men also allegedly set up shell companies and used multiple private cryptocurrency addresses and foreign cryptocurrency exchanges to hide their scheme.

“The defendants’ scheme calls the very integrity of the blockchain into question,” said Manhattan U.S. Attorney Damian Williams, whose office is prosecuting the two men.

“Once they put their plan into action, their heist only took 12 seconds to complete,” Williams said.

“This alleged scheme was novel and has never before been charged.”

Anton Peraire-Bueno, a 24-year-old who lives in Boston, and James Peraire-Bueno, 28, of New York City, were arrested Tuesday on charges of conspiracy to commit wire fraud, wire fraud and money laundering.

Williams’s office said that the Peraire-Bueno brothers studied math and computer science “at one of the most prestigious universities in the country,” and their education would have helped them carry out the alleged fraud.

Online records show that James studied for a master of science in aeronautics and astronautics at MIT. He also attended MIT as an undergraduate and was on the university’s sailing team.

Anton graduated from MIT in 2023 with a bachelor’s degree in computer science, according to his LinkedIn page. He also was a member of the university’s rowing team.

Anton’s LinkedIn says that he was a cryptocurrency researcher intern at a San Francisco-based Polychain Capital for several months in 2021.

In 2020, Anton co-authored an academic paper about a machine-learning model that could have “a strong practical impact” for organizations “with large amounts of sensitive data,” according to a synopsis of that paper.

If convicted, the brothers face a maximum sentence of 20 years in prison for each of the three counts.

They appeared separately in federal court in New York and Boston on Wednesday afternoon.

Judges set their bonds at $250,000 apiece, and each will be required to obtain two co-signers for their release bonds by May 29, according to a spokesman for the Manhattan U.S. Attorney’s Office. They are also barred from trading cryptocurrency, securities, and commodities.

The charges against the brother come ahead of a long-awaited ruling from the Securities and Exchange Commission on whether to approve an Ethereum exchange-traded fund.

That ETF would allow investors access to the ether token without having to directly own the cryptocurrency.

The SEC’s deadline to complete its review ahead of a ruling is later this month.

Issuers of Bitcoin ETFs have already been bearish on the chances that the SEC will approve an ether ETF.

The DOJ’s announcement of the alleged fraud could increase skepticism as the SEC completes its Ethereum ETF review.

SEC Chair Gary Gensler has expressed concern about lacking regulation in crypto markets that could make it a dangerous listing for investors.

“To me, the fundamental question is, how do we ensure that the American investor is protected? And right now, they’re not getting the required or needed disclosures,” Gensler said in an interview on CNBC’s “Squawk Box” earlier this month.

“And the intermediaries in the center of this rather centralized market generally are conflicted and doing things we would never allow the New York Stock Exchange to do,” he said.

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