Apr 12, 2024 - Business

Prosecutors rest case in $116M Mango Markets fraud

Illustration of a pattern of mangos and scales.

Illustration: Shoshana Gordon/Axios

The government on Friday rested in its case against cryptocurrency trader Avraham Eisenberg, who is facing fraud charges.

Driving the news: Prosecutors presented very strong arguments that the defendant had a good idea he was committing a crime over a year ago, when he managed to extract over $100 million from Mango Markets.

Why it matters: In a fraud case, the government has to not only show that the defendant committed a crime, but that they were aware that what they were doing was against the law.

Catch up fast: Eisenberg is on trial in Federal Court in Manhattan for engaging in a trade where he was able to withdraw all the capital on Solana-based Mango Markets on October 11, 2022, using a derivate of the mango (MNGO) token as collateral.

  • After inflating the token with strategic purchases on various exchanges, he used the inflated value of a MNGO derivative as collateral to borrow all the available deposits on the platform, over $100 million worth.
  • Then he withdrew those funds to a wallet he controlled, and let his loan default.

Inside the room: The government called FBI Special Agent Taylor LaGrange as its final witness. LaGrange went through documents that suggested the defendant suspected he was crossing a legal line.

  • The agent had reviewed a bunch of documents that the government wanted to enter into evidence. She was not a part of the larger investigation into Eisenberg.

First, they entered a complaint in a July 2022 lawsuit Eisenberg brought against Numeris, Ltd, in which he objected to a trade on the Waves blockchain. There, the defendants allegedly inflated the value of the WAVES coin, and then used that to borrow and walk away with a bunch of stablecoins.

  • Then, they showed a tweet in which Eisenberg shared a Department of Justice press release about manipulation of prices for an exotic trade in the foreign exchange markets, in September 2022.
  • On September 28, he shared another press release about a consent decree from Justice about a cryptocurrency team that collaborated with a market maker to make liquidity for a token it had created look robust. Then, he sold $2 million worth of it.

Zoom in: The government produced chat logs of Eisenberg describing how he was looking for a thinly traded tokens, whose price he could move quickly by making a big purchase.

  • In that chat, he lists pros and cons of attempting it against balancer (BAL) of mango (MNGO), the token at question in his case.

Friction point: They also produced evidence of extensive searches by Eisenberg on his phone and on his computer for topics like market manipulation, when market manipulation becomes a crime, security at airports and extradition rules from Israel (where he went immediately after completing the trade).

Yes, but: The defense also showed that Mango Markets notified users of its platform ultimately faced the risk of this kind of loss.

  • During the cross-examination of government witness, Oliver Tonkin of the BCB Group, the government walked through the service's documentation.
  • It showed that losses on the platform were ultimately backstopped by other users, even if they weren't directly party to the trade. The documentation referred to this as "socialised losses."
  • That page reads differently now.

Of note: Though a shadow of its former self, the decentralized exchange has carried on. Its latest version has about $18 million deposited and is doing hundreds of thousands in volume today.

  • Between the insurance fund and those returned by Eisenberg, platform users were made whole in a couple weeks after the trade.

In the room: Eisenberg's parents were there to watch the government close its case against their son in court today.

  • While the jury was out of the room, the defense won a concession from the judge to show tweets from Eisenberg showing he believed his trade was legal. They have not yet been shown to the jury.

Worth your time: After returning most of the funds to the company, but before his arrest, Eisenberg talked through his trade and its ethics in detail on the Unchained Podcast.

What's next: The defense will begin Monday morning, with the trial likely to end the middle of next week.

  • There's some chance the defense will call Eisenberg to the stand.
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