MEV bot exploit heads to US court, testing crypto’s legal gray zones

Opening arguments in the criminal trial for two brothers allegedly responsible for using maximal extractable value (MEV) bots to perpetuate a multimillion-dollar exploit kicked off on Wednesday.

Anton and James Peraire-Bueno appeared in a New York courtroom as US attorneys and defense lawyers presented different narratives around the alleged crypto scheme, which resulted in about $25 million being removed. 

According to reporting from Inner City Press, attorneys for the US government claimed the brothers “tricked their victims” by committing a “high-speed bait and switch.” However, defense attorneys said the “victims here were sandwich bots,” adding that the Peraire-Bueno duo employed a trading strategy and claimed that the profits were not illegal, so there was no related money laundering. 

“Yes, they off-ramped the crypto,” said the brothers’ defense attorney, Katherine Trefz, in opening arguments. “They brought it into the US and paid tax on it: $6 million. Before they were arrested in their homes. This is a complicated case.”

The alleged exploit of the Ethereum blockchain in April 2023 followed months of preparation by targeting accounts that used MEV bots, researching potential penalties for misconduct, and analyzing code. US authorities arrested the pair in May 2024.

Related: MEV arbitrageurs on Ethereum increasingly centralized — Research

What the charges mean for MEV operators

The brothers each face charges related to conspiracy to commit wire fraud, money laundering, and conspiracy to receive stolen property, potentially allowing a judge to sentence them to up to 20 years in prison for each count if convicted.

Many industry experts are monitoring the trial for the potential impact on the Ethereum network.

“I’m open to changing my mind but it seems [like a] pretty gray area to me,” said Evan Van Ness, chief investment officer of crypto company TXPool Capital, shortly after the brothers’ arrest in May 2024. “Many MEV operators adopt the ‘all is fair in love and MEV’ mantra. And the brothers literally sandwiched some sandwich attackers?”

“I think the charges make sense,” said Dankrad Feist, a researcher at the Ethereum Foundation, in response to Van Ness. “They exploited a bug in a system for their own gain. Just because it’s a permissionless system doesn’t mean there are now [sic] rules. Code is not law.”

The trial was ongoing in the US District Court for the Southern District of New York at the time of publication. Both brothers have been free on bail since May 2024.

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