The criminal fraud trial of crypto trader Avi Eisenberg after he crippled decentralized platform Mango Markets in October 2022 will be the first such prosecution in the decentralized finance (DeFi) industry.
Eisenberg is accused of illegally manipulating the once popular Solana-based platform through what he calls a “highly profitable trading strategy.” He successfully manipulated the price of the platform’s native token, MNGO, and then effectively borrowed all of Mango’s deposits. As a result, the trader walked away with $110 million worth of cryptocurrencies that had been deposited by other platform users.
Eisenberg later returned some of the cryptocurrency to avoid prosecution, in exchange for Mango users promising not to seek prosecution against him, but the platform’s backers did not keep their word, so his trial is scheduled to begin on April 9.
Negotiations with Mango Markets could be seen as a hostage situation
Mango founder Dafyed Dulairaj spoke to a ransomware negotiator seeking help, prosecutors said in court on April 8. If true, it could indicate the founder viewed the negotiations as a hostage situation rather than a "fair deal between two parties," prosecutors argued.
We are currently investigating an incident in which a hacker diverted funds from Mango via oracle price manipulation.
We are taking steps to request that third parties freeze the funds in transit. 1/
— Mango (@mangomarkets)
October 11, 2022
Judge Arun Subramanian told the government not to mention the ransomware negotiator to mitigate the risk of the jury being pushed early in the case. However, prosecutors could mention it if Eisenberg's defense team argued that the negotiations were actually an arm's length deal, the judge said.
Federal prosecutors' first attempt
The prosecution then debated with Eisenberg's defense team over the word "manipulation." More specifically, they analyzed the word's presence in the online terms of service document and how witnesses might have used it.
The wording on Mango Markets that refers to traders being “obliged” to do something has also received attention. There has been debate over whether the term is legally binding or simply refers to the results of certain smart contract transactions.
The arguments over these trivial terms and phrasings may foreshadow the complexity of the case, and will likely test the government’s latest strategy of presenting complex crypto trading strategies as simple cases of fraud.
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