DOJ charges MIT brothers with $25 million crypto theft

Politics

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

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

Their father is Jaime Peraire, the H.N. Slater Professor in Aeronautics and Astronautics at MIT and a former head of the university’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 James, 28, and 24-year-old Anton.

Peraire declined to comment further.

Prosecutors said that Peraire-Bueno 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 Peraire-Buenos 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.”

James, who lives in New York City, and Anton, who lives in Boston, were arrested Tuesday on charges of conspiracy to commit wire fraud, wire fraud and money laundering.

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.

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

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

James Peraire-Bueno earned a Bachelor of Science in mathematics with computer science, and in aerospace engineering in June 2019 from MIT, and then in June 2021 earned a Master of Science in aeronautics and astronautics from the school, according to an MIT spokeswoman.

During his undergraduate years, he was a member of MIT’s sailing team.

Anton Peraire-Bueno earned a Bachelor of Science in computer science and engineering from MIT in February. He was a member of the university’s rowing team.

Anton’s LinkedIn page says 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.

Lawyers for Anton did not immediately respond to requests for comment. The court docket did not show that any attorneys had filed appearances on behalf of James.

The charges come ahead of a long-awaited ruling expected from the Securities and Exchange Commission later this month 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.

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 that 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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