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:

“Operation size is enormous ... $6 million on the contract. Large end if you trap them all at once and could be way higher.”

According to Chen, the plan involved submitting eight carefully designed “bait” transactions that would attract sandwich bots to take specific trading positions. Once those bots reacted, the brothers sprung their trap, exploiting the flaw to capture the bots’ funds.

Prosecutors say the scheme — executed on April 2, 2023 — netted the conspirators roughly $25 million, which they then laundered through “hundreds upon hundreds” of transfers and swaps to conceal the source of the proceeds.

Flashbots’ Response and the Aftermath

Robert Miller, a product developer at Flashbots, which created the MEV-Boost software, testified earlier Friday about the technical impact of the exploit. He described how the incident — now known as “Omakase” — exposed a critical vulnerability that caused widespread losses for users across the Ethereum ecosystem.

Miller said Flashbots patched the flaw within 24 hours, but noted that the alleged perpetrators later contacted him anonymously, asking that he avoid calling the event an “exploit.” They offered to share information about a similar trading strategy if he softened the terminology in public discussions.

The Defendants and the Trial

Prosecutors allege the Peraire-Bueno brothers, both graduates of the Massachusetts Institute of Technology in computer science and mathematics, leveraged their technical expertise to orchestrate the sophisticated blockchain heist.

The government is represented by Danielle Kudla, Jerry Jia-Wei Fang, Benjamin Levander, and Ryan Nees of the U.S. Attorney’s Office for the Southern District of New York.

Anton Peraire-Bueno is represented by Daniel N. Marx and William W. Fick of Fick & Marx LLP.
James Peraire-Bueno is represented by Katherine Trefz, Daniel Shanahan, Patrick Looby, Ikenna Ugboaja, and Joseph Bayerl of Williams & Connolly LLP, along with Jonathan Bach of Shapiro Arato Bach LLP.

Chen’s testimony is set to continue Monday.

The case is United States v. Peraire-Bueno et al., Case No. 1:24-cr-00293, in the U.S. District Court for the Southern District of New York.