S Pettigrove and M Bacina
A bitter taste for Eisenberg as SEC and Mango Markets file lawsuits
Updated: Jan 27
On 20 January 2023, the Securities and Exchange Commission (SEC) charged Avraham Eisenberg with orchestrating an attack on Mango Markets, a crypto asset trading platform. The SEC alleges that Eisenberg manipulated the MNGO token, which the SEC alleges is a security under US law. The token is styled as a governance token which permits holders to vote on various aspects of the Mango Markets project.
Eisenberg, a United States citizen, was arrested and detained in Puerto Rico in December 2023 and is awaiting transfer to the Southern District of New York.
The Department of Justice and the Commodities Futures Trading Commission (CFTC) has brought parallel criminal and civil charges against Eisenberg. David Hirsch, Chief of the Crypto Assets and Cyber Unit, said that:
As we allege, Eisenberg engaged in a manipulative and deceptive scheme to artificially inflate the price of the MNGO token, which was purchased and sold as a crypto asset security, in order to borrow and then withdraw nearly all available assets from Mango Markets, which left the platform at a deficit when the security price returned to its pre-manipulation level.
In October 2022, according to the SEC, Eisenberg engaged in a scheme to steal around $116 million worth of crypto-assets from the Mango Markets platform. The SEC alleges that Eisenberg carried out the scheme while being based in Puerto Rico, whereby he used an account that he controlled on Mango Markets to sell perpetual futures for MNGO tokens and used another account on Mango Markets to acquire those same perpetual futures.
Following this, Eisenberg engaged in a series of purchases of the MNGO token for the purpose of artificially raising the price of the MGNO token relative to the crypto-asset USD Coin. This increased the value of Eisenberg's collateral on the Mango Market exchange and allowed him to withdraw the equivalent of US$110m in various tokens, including USDC, SOL, mSOL, wBTC, SRM and a large amount of MNGO tokens. Or as Mango Markets put it:
by temporarily purchasing approximately 488 million MNGO tokens (of approximately 500 million tokens in circulation), taking out significant loans against the inflated collateral, and then cashing out once the currency’s value inflated threefold...This drained Mango Markets’ depositor smart contract and significant user assets.
He later entered into a settlement agreement with Mango Markets under which users' losses were returned and Avrahams retained USD$47M of value.
In December 2022, Eisenberg sought to adopt a "code is law" defence, asserting that his trading involved "legal open market actions" and that the Mango Market's protocol had merely operated as designed. What makes this case high profile is that Eisenberg publicly defended his actions on Twitter following the exploit, saying he engaged in a "highly profitable trading strategy". Eisenberg then appeared on Laura Shin's popular Unchained Podcast further asserting that his actions were correct and permitted by the code and therefore were legitimate. The "code is law" defence is unlikely to gain traction in the courts on the market manipulation charge, but it may assist on the fraud claims due to the high burden of proof regarding intent.
In addition to the FBI, CFTC and SEC lawsuits, Mango Markets themselves have now commenced an action against Eisenberg, asserting that the attack was "malicious" and that the settlement agreement was entered into under "duress". Mango Markets are seeking USD$47M in damages from Eisenberg plus interest.