NEW YORK - A trader accused of exploiting Mango Markets rules to steal US$110 million (S$150 million) from the exchange was convicted of fraud in the first US trial involving criminal charges tied to cryptocurrency manipulation.
Federal jurors in New York on April 18 found Avraham Eisenberg, 28, guilty of commodities fraud, commodities manipulation and wire fraud for his actions on Oct 11, 2022, when his trading boosted the price of futures contracts by 1,300 per cent in 20 minutes.
Sentencing was set for July 29. He faces 20 years in prison on the wire fraud count and 10 years on each of the other charges.
Eisenberg, a self-described “applied game theorist”, traded under a false identity and drove up the price of Mango’s token, MNGO, as well as contracts based on its relative value compared with a stablecoin called USDC, prosecutors said. He then exploited a feature of the exchange that let him “borrow” against his holdings, withdrawing US$110 million in cryptocurrency that he had no intention of repaying, the US charged.
Prosecutors said Eisenberg “pumped” the price of MNGO tokens to pull off a fraud he planned for weeks against Mango Markets, a decentralised finance platform run by smart contracts.
“He manipulated that price so he could trick the system into giving him money,” Assistant US Attorney Thomas Burnett said in closing arguments on April 17. “He planned to take the money and run.”
Mango Markets, which lets people borrow, lend and trade cryptocurrencies, was overseen by a decentralised autonomous organisation, or DAO.
Days after his big haul, Eisenberg agreed to return US$67 million in crypto in exchange for the DAO not pursuing his prosecution or freezing his remaining assets. Eisenberg left Puerto Rico, where he was living, shortly after his Mango trades and flew to Israel. When he returned to Puerto Rico on Dec 26, 2022, US agents arrested him. He has been in jail ever since, after a judge ruled he posed a risk of fleeing before trial.
In his closing argument, Eisenberg’s attorney Brian Klein said his client executed a perfectly legal strategy permissible under the rules of the exchange. Eisenberg “engaged in a successful and legal trading strategy, one in which he put his own money at risk”, Mr Klein said. He said Eisenberg “wholly complied” with smart contracts that controlled the decentralised finance platform, which only warned users: “This is unaudited software, use it at your own risk.”
Mr Klein said Eisenberg does not dispute that he made a series of trades taking opposing long and short positions. “It’s not illegal to take big risks,” he argued.
But Mr Burnett said the rules of the Mango Markets platform do not protect Eisenberg from prosecution for fraud and manipulation.
“Just because something is possible doesn’t make it legal,” the prosecutor said. BLOOMBERG
