US prosecutors have opposed attempts to introduce cryptocurrency policy arguments in the criminal trial of two brothers accused of using Ethereum trading maximal extractable volume bots to steal $25 million.
According to court documents from the US District Court for the Southern District of New York, federal authorities filed a plea to Judge Jessica Clarke, asking the court to reject a proposed amicus curiae brief filed by a third party seeking to advise the court.
The prosecution believes the document could improperly sway the jury to rule in favor of the sons of Jaime Peraire, the former head of MIT’s department of aeronautics and astronautics. The brief was forwarded by cryptocurrency advocacy group Coin Center to query the government’s “honest validator theory,” which forms the basis of its fraud argument.
Federal prosecutors; Amicus curiae submission is useless
Per the US government’s argument to Judge Jessica Clarke, the proposed amicus submission was “inappropriate, unhelpful to the Court, and an invitation for nullification,” and questions about digital asset policy belong before Congress, not a jury.
“A brief directed at policy arguments regarding the role of validators in the industry is not relevant to the governing legal standard,” prosecutors wrote in their letter to Judge Clarke.
The Department of Justice indicted Peraire-Bueno brothers Anton, 24, and James, 28, in May of last year, claiming they exploited a vulnerability in software used by automated trading bots on Ethereum. Prosecutors claim the pair manipulated transaction orders to siphon roughly $25 million in cryptocurrency in 12 seconds, Cryptopolitan reported.
Court filings seen by Cryptopolitan read that the brothers’ used MEV, or maximal extractable value, a practice in which blockchain validators or traders reorder transactions within a block to gain an unfair advantage.
Defense attorneys have accused the government of introducing a “stunning new theory of fraud” which disputes how blockchain users operate, without a clear explanation why. They told the court that under the “honest validator theory,” any Ethereum participant acting competitively could face federal charges simply for “deviating from the blockchain’s specifications.”
Lawyers Daniel Nathan Marx and William Fick cited United States v. Finnerty, a 2008 Second Circuit case doubling down on claims of prosecutors “overstepping established precedent.”
The defense also urged Judge Clarke to permit Coin Center’s participation, saying the organization’s expertise is relevant to understanding the implications of the government’s theory.
“The government’s blind opposition to the submission falls within the Court’s wide discretion to allow, consider, and give whatever weight it deems appropriate,” they stated.
Coin Center, a Washington-based crypto policy group, has not formally been identified in the court’s filings, but references in the defense’s correspondence insinuate it is the organization behind the amicus brief.
Marx and Fick insist Coin Center’s intent is not to influence the jury, as it seeks to clarify how the government’s new legal theory could change how blockchain activity is interpreted beyond the case.
As a basis for their legal argument, the attorneys named other courts, including Judge Failla in the United States v. Storm case, which previously permitted limited amicus participation during jury instruction stages.
Ethereum’s decentralization disputes honest validator theory
According to news publication Business Insider, the defense contends that Ethereum’s decentralized network structure undermines the government’s fraud claim. According to Marx and Fick, Ether’s blockchain lacks a central authority and that market participants are guided by economic incentives rather than enforceable promises.
If those incentives fail to prevent exploitation, they argue, it is merely a systemic issue rather than criminal conduct.
“The Ethereum network functions through independent actors following incentive structures, not contractual obligations,” the defense reportedly said. They contend that because no “promise to the victim” was made, the fraud statute does not apply.
The defense counsel filed a letter in early October requesting Judge Clarke to limit testimony from Flashbots researcher Bert Miller to purely technical matters. Flashbots is a developer in the MEV ecosystem that prosecutors plan to use in explaining how the alleged exploit occurred.
The Peraire-Bueno brothers’ lawyers are against allowing Miller to interpret or comment on the “rules” governing Ethereum or expectations for “honest validators,” insisting his testimony is more “subjective” than policy-driven.
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Source: https://www.cryptopolitan.com/us-prosecutors-crypto-policy-25m-mev/