Apr 9, 2024 - Economy

Crypto trader disputes talk of manipulation in Mango Markets case

Illustration of a gavel hovering over a pattern of crypto coins about to smash one.

Illustration: Aïda Amer/Axios

A trial kicked off Monday in federal court for a crypto trader and a strategy he employed that prosecutors allege was a $110 million theft.

Why it matters: The defense team for Avraham Eisenberg is being touchy about how the suggestion of market manipulation might come up in his trial, and shows every sign of arguing that, on blockchains — what's allowed by the software that runs a marketplace is, in fact, allowed.

  • In crypto-speak, this line of thinking is referred to as "code is law."

Catch up quick: Eisenberg is charged with three criminal counts which ultimately boil down to accusations of market manipulation.

  • He took out a long position in the mango (MNGO) token, then bought lots of the thinly traded token on various marketplaces.
  • When the token shot up in value, the value of his futures holdings shot up as well, which he used as collateral to borrow over $100 million worth of cryptocurrency on the Mango Markets platform.
  • He withdrew that crypto, stopped his MNGO trade, and allowed his loan to default shortly thereafter, surrendering his collateral, as its value collapsed when MNGO came back down to earth.

The big picture: These facts aren't disputed. The question is whether or not they were a crime.

What he's saying: "I believe all of our actions were legal open market actions, using the protocol as designed, even if the development team did not fully anticipate all the consequences of setting parameters the way they are," Eisenberg wrote on X, formerly Twitter, a week after the trade.

The latest: Most of the first day of the trial — which is expected to run for two weeks — concerned jury selection.

  • The seated 12-person jury was made up of seven men and five women, plus three alternates (all women), ages 25 to 67.
  • The jury pool had a lot of finance types in it, and three folks with that background made the panel. There was also a nurse, a bookseller, a former Broadway performer and a music teacher sworn in to judge the facts in the case.

Between the lines: After the jury was sworn in and escorted from the room, Judge Arun Subramanian entertained a few lines of discussion from the attorneys about potential lines of questions.

  • Waymaker's Brian Klein, speaking for the defense, sought to prevent the government from asking questions that might suggest Eisenberg had broken some expectations that could be interpreted as legal in nature.
  • He was specifically concerned about prosecutors or witnesses veering into words like "obligation" when discussing, for example, the repayment of loans that Eisenberg took out against his position in the mango (MNGO) token.
  • "We don't mind questions about what happened," Klein said, referring to the mechanics of Eisenberg's trade. "It is a fine line, your honor."
  • The judge instructed the prosecution to be careful about its word choice as it examines is witnesses and noted that the defense could object if they went to far.

Inside the room: Eisenberg, who was 27 at the time of his arrest in 2023, appeared in court with his hair shaved short, in a navy blue suit, with a single vent in the back which hadn't had its stitches holding it closed removed yet.

  • He was surrounded by his legal team led by Klein, a familiar face in cryptocurrency cases. He represented Virgil Griffith, the Ethereum developer who went to North Korea to teach people there about mining the Ethereum blockchain. Griffith was later sentenced to more than five years in prison.
  • He also represented early Bitcoin entrepreneur, Charlie Shrem, founder of BitInstant. Shrem was convicted in 2014 of facilitating black market cryptocurrency transactions.

The trial resumed Tuesday morning, with attorneys first taking up an objection about a piece of government evidence, before opening statements before the jury.

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