If you graduate from the Massachusetts Institute of Technology with elite computer skills, you can make tons of money working at high-tech companies, or even more money working on Wall Street. But if that doesn't appeal to you and you want to get even richer, you can always try white-collar crime, like the 20-something brothers Anton Perer Bueno and James Perer Bueno. The two came up with a plan that would allow him to pocket $25 million in just 12 seconds. Unfortunately, as the federal government announced yesterday in a pulp-novel press release, it ended badly.
“Unfortunately for the defendants, their alleged crimes did not extend to Justice Department prosecutors or Internal Revenue Service employees,” the Justice Department wrote. As a reminder, the release quotes an investigator who declared that the crime was solved “through cutting-edge technology and good old-fashioned investigative work.”
Purple prose aside, the case includes some impressive detective work and a sophisticated explanation by a Justice Department lawyer about new types of criminal charges involving the Ethereum blockchain. This crime involves the arcane business of “maximum extractable value” (MEV), which packages transactions into blocks so that blockchain builders can profit from the transactions of others.
Of course, the miners building blockchains are not doing this out of good faith. Instead, this process, in the case of Bitcoin, Ethereum, and other chains, relies on incentives that allow miners to earn rewards in the form of both coins and transaction fees for adding new blocks. However, when Ethereum switched to a new blockchain construction process known as proof-of-stake, it created new opportunities for miners to earn money from things like front-running transactions contained in the blocks they package. This is what people mean by his MEV. (Bitcoin investment company River and the Justice Department's criminal complaint provide ample explanation of how exactly Bitcoin works).
MEV has been around for a while, and although many in the crypto industry find it offensive, it is not illegal. In fact, something similar happens in the traditional finance world, including a practice known as pay for order flow. But the Perer-Bueno brothers took things a step further by discovering a bug in the common software used to run MEV. This allowed them to alter Ethereum users' transactions in a way that allowed them to not just front-run, but outright extort them.
All of this could lead to new scrutiny of MEV's murky practices, leading to calls for reform among the Ethereum crowd. As for Perer Bueno, this episode showed that even someone with an MIT degree can have some old-fashioned stupidity. Not only were they arrested, but the Justice Department also found evidence that they had conducted web searches on topics such as money laundering and how to escape financial fraud. Don't Google your crime. Finally, the brothers can at least rest easy knowing that they are not the only MIT alumni charged with crypto crimes, and that the school is also the alma mater of a man named Sam Bankman Freed.
jeff john roberts
jeff.roberts@fortune.com
@jeffjohnroberts
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