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.
