Ex-Trader Testifies MIT Brothers Planned $25M Ethereum “Bait and Switch” Months in Advance

A former employee of two MIT-educated crypto entrepreneurs testified Friday in Manhattan federal court that the brothers meticulously planned for months to exploit a software glitch in the Ethereum blockchain to siphon off $25 million from other traders in what prosecutors call a first-of-its-kind crypto “bait and switch” scheme.

Travis Chen, a Stanford-educated quantitative trader and ex-employee of the brothers’ company, 18decimal, took the stand in the trial of Anton and James Peraire-Bueno, who are charged with wire fraud, wire fraud conspiracy, and money laundering conspiracy. Chen testified under a nonprosecution agreement, acknowledging that he pocketed $2.4 million from the alleged operation — code-named “Omakase” — which he has since agreed to forfeit.

“It was an operation that profited at the expense of sandwich bots,” Chen told the jury, referring to automated trading programs that exploit price fluctuations by front-running and back-running transactions on the Ethereum network.

Months of Planning and a Secret “Omakase” Operation

Chen described a December 2022 meeting where the Peraire-Bueno brothers outlined their plan to exploit a vulnerability in MEV-Boost, open-source software used in Ethereum’s transaction process. MEV-Boost delegates block creation to specialized entities called “builders,” who send completed blocks to “relays” before they reach validators — the entities responsible for confirming transactions.

Normally, validators cannot see transaction data before committing to a block, preventing them from manipulating it. But prosecutors say the brothers discovered a glitch that allowed them to view and modify transaction details early, restructuring blocks to favor themselves and defraud rival traders.

Chen’s handwritten notes from the 2022 planning meeting were shown to the jury, referencing both the scale of potential profit and the need for absolute secrecy: