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U.S. Indicts Brothers for Attack on Ethereum Trading Bots

source-logo  cryptopolitan.com 15 May 2024 22:27, UTC

Two brothers, Anton Peraire-Bueno and James Peraire-Bueno, stand indicted by U.S. authorities for a calculated assault on Ethereum trading bots that shook the core of blockchain security.

This sophisticated crime spree unfolded last year, prompting a rigorous investigation that culminated in the unveiling of charges by the Department of Justice on Wednesday.

The brothers that laundered money through crypto

The duo faces allegations of wire fraud and money laundering conspiracy. Their operation reportedly compromised the Ethereum blockchain’s integrity, nabbing roughly $25 million in cryptocurrencies—all within a dizzying span of about 12 seconds.

Their arrest earlier this week in Massachusetts and New York marks a significant breakthrough in the case.

April 2023 saw the execution of their daring exploit. They targeted automated bots designed to capitalize on trading efficiencies—bots that attempt to anticipate and profit from pending transaction orders on the Ethereum network.

These bots, driven by a concept known as Maximum Extractable Value (MEV), exploit the lag between transaction announcement and confirmation for profit.

The brothers concocted a deceitful lure, initiating at least eight rigged transactions known to attract the bots into a trap, capitalizing on a now-fixed vulnerability in MEV-Boost software.

Each trapped transaction coerced the bots into buying large volumes of hardly liquid cryptocurrencies using $25 million in various stablecoins.

DOJ accuses them of deception and concealment

To elude capture, Anton and James masked their identities using shell companies and anonymous cryptocurrency addresses.

Post-attack, they meticulously moved the pilfered cryptocurrency through numerous transactions aimed at obscuring its origins and true ownership.

Their preparatory work was extensive. They researched know-your-customer (KYC) standards and legal extradition intricacies, evidently planning their steps with meticulous precision. They also delved into potential charges they could face, arming themselves with knowledge to stay ahead of law enforcement.

Deputy Attorney General Lisa Monaco remarked on the case, emphasizing the technological sophistication and unprecedented nature of the scheme—a plot hatched over months and executed in mere seconds.

The indictment provides a detailed account of the Ethereum blockchain operation, explaining the role of validators—those who confirm and secure transactions—and the ‘mempool,’ where transactions wait before confirmation.

The MEV-boost software in question facilitates the assembly of these transactions into blocks, allowing so-called ‘searchers’ to optimize trading strategies that could potentially undercut standard user profits.

The mechanics of their exploitations

The crux of the brothers’ strategy involved creating 16 Ethereum validators to pinpoint and exploit three specific traders’ bots.

They sent out bait transactions to analyze the bots’ trading patterns. Subsequently, they drew these bots to a validator they controlled, which was about to validate a new block.

Here, they executed the crux of their strategy: they preempted the bots, tampered with block transactions by swapping in fraudulent digital signatures, and swapped out genuine transactions for deceptive ones.

The targeted bots ended up buying worthless cryptocurrencies at high volumes, thinking they were securing valuable assets.

This left the victim traders with significant losses, as they were unable to sell the devalued cryptocurrencies, effectively stranding $25 million in more liquid assets like stablecoins, which the brothers then absconded with.

Finally, the laundering of these ill-gotten gains was meticulously planned. The brothers converted the stolen cryptocurrencies into DAI and then into USDC, further masking their trail.

Special Agent in Charge Thomas Fattorusso of the IRS Criminal Investigation New York Field Office highlighted this operation as a novel form of blockchain manipulation, one that involved advanced knowledge of Ethereum’s inner workings and substantial technical expertise.