'Massive overstep': mistrial declared for 'MEV Brothers' accused of $25 million fraud on Ethereum

The four-week trial of two MIT-educated brothers accused of orchestrating a $25 million fraud on Ethereum by federal prosecutors has ended in a mistrial after the jury could not agree on how to apply the law in the case, according to reports. 

The brothers, Anton (25) and James (29) Peraire-Bueno, were charged with conspiracy to commit wire fraud, wire fraud, and conspiracy to commit money laundering by prosecutors from the Southern District of New York (SDNY) in relation to an alleged exploit of MEV-Boost software that netted the brothers $25 million in just 12 seconds. 

However, the brothers' defense countered that the brothers' actions constituted fair play in the competitive space of automatic bot operations on Ethereum, especially those which involve MEV, the "maximal/miner extractable value" that validators can earn by organizing transactions in an optimal way before submitting the block to Ethereum's blockchain. 

In April 2023, just seven months after Ethereum completed its transition to a proof-of-stake validation system after The Merge, the brothers allegedly exploited a flaw in the popular MEV-Boost software to spy on other traders' activity after intentionally "poisoning" a block of transactions. With the insight, the brothers were able to use a "sandwich attack" to bid up the price of a token before another trader's transaction executes, then sell the tokens at the higher price, pocketing the difference; in their case, the brothers profited $25 million in just 12 seconds. 

Yet Peter Van Valkenburgh, executive director of crypto advocacy firm Coin Center, drew a distinction between the brothers' actions and other DeFi exploits — such as Avraham Eisenberg's alleged manipulation of Mango Markets, which was later vacated — because validators are expected to optimize for MEV in the adversarial world of block-building. 

"There's sort of no honor amongst validators," Van Valkenburgh said in an interview with The Block. "The only thing you're expected to do as a validator or as an MEV searcher is to maximize your profits and to only put valid transactions in blocks."

Van Valkenburgh argued in an amicus brief submitted to the court that a successful prosecution in the case would "massively chill public participation" in permissionless networks, and that the brothers "appear to have contravened none of the clear rules or controls found within the Ethereum protocol in a manner deserving outside interference or enforcement." 

"We want this neutral infrastructure because that's where the efficiencies are," Van Valkenburgh said. "The brilliance behind the system is we wouldn't have to rely on the good behavior of an individual or a nation state. But if we start holding everybody who participates in that neutral infrastructure liable, then we lose that chance." 

While the jurors didn't have trouble understanding the facts of the case, according to a Business Insider report from inside the courtroom, the jury was deadlocked over how to apply existing law to the case, which the department called a "first-of-its kind wire fraud and money laundering scheme" in a statement. The deliberations left some jurors in tears, and unable to sleep through the night, according to the report. Judge Jessica G. Clarke ended the trial after being convinced that the jury was unlikely to make further progress, given more time. 

"A mistrial is not at all surprising to me because, gosh, if I wasn't a crypto person and I was on that jury, I would just be incredibly confused," Van Valkenburgh said, calling the prosecution's decision to bring the case a "massive overstep." 

Following the mistrial, the brothers both remain charged with the three counts, leaving the future of the case up to SDNY prosecutors, who can choose to either drop the case or retry the brothers in another effort. Van Valkenburgh said that if prosecutors decide to retry the case, it will signal a continued aggressive push towards the Justice Department establishing jurisdiction over blockchain networks, even under an administration that has positioned itself as friendlier to the crypto industry and its developers.  

"If they double down [and retry the case], then yeah, it seems to continue to indicate that the Southern District of New York, the prosecutors at least, think that effectively anything that happens on these blockchains is their jurisdiction and that they can awkwardly bodge existing criminal law to apply to all kinds of new factual scenarios," Van Valkenburgh said. 

The Block was unable to immediately reach SDNY or the brothers' legal defense for comment.