Jury selection kicks off today in federal court for a DeFi trader and a strategy he employed that prosecutors allege was a $110 million theft, Axios' Pete Gannon writes.

Why it matters: The case is the first known test for prosecutors to prove a crime of market manipulation in the world of decentralized finance.

Between the lines: Federal prosecutors charged Avraham Eisenberg last year with commodities market manipulation and fraud for a trading strategy he employed on the Mango Markets crypto exchange in late 2022.

• Eisenberg doesn't dispute the facts of the strategy but has contended that what he did was legal and permitted by the DeFi protocol.
• He's pled not guilty to the criminal charges. Two separate civil suits from the SEC and the CFTC are currently on hold.

The scheme involved Eisenberg inflating the value of perpetual futures for Mango Markets' governance token, mango (MNGO).

• Using two different accounts set up on Mango Markets, Eisenberg in October 2022 sold a large amount of perpetual futures from one account to the other, creating a "long" position in one and a "short" position in the other.
• These were positions the exchange permitted as use as collateral to borrow other cryptocurrencies that users deposited to earn interest.
• Eisenberg then went onto the open market and started aggressively buying the mango token — which was thinly traded — on three different exchanges. This drove up the value of MNGO, as well as the value of his futures.
• Using that collateral, which prosecutors note rose about 1,300% in value in a period of roughly 20 minutes, Eisenberg was able to borrow all the money available on Mango's money market, worth about $116 million at the time.

Eisenberg then withdrew that crypto from the platform, and when he stopped purchasing MNGO, the price of MNGO perpetuals on Mango Market collapsed.

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.

• He said that when Mango Markets briefly became insolvent after the trade, he negotiated a settlement that "made all users whole," arguing that the move was similar to autodeleveraging processes on exchanges.

Reality check: Prosecutors have made clear that they are not holding conduct in DeFi markets to any separate standards.

• "Market manipulation is illegal in all of its forms, and this Office is committed to prosecuting such schemes wherever they occur — including in the cryptocurrency markets," U.S. Attorney Damian Williams said in a statement last year.
• "As alleged, Avraham Eisenberg manipulated the Mango Markets cryptocurrency exchange in order to obtain over $100 million in illicit profits for himself. Through his scheme, Eisenberg left others holding the bag.

What we're watching: The trial kicks off in U.S. District Court today before Judge Richard M. Berman and is expected to last at most three weeks, according to court filings.

• Axios Crypto is covering.

Bitcoin broke $72k this morning, which could mean a bigger rally to come, according to a technical analysis by 10x Research, noted this morning by CoinDesk.

Between the lines: According to a note sent to the firm's clients, per wording from CoinDesk, today's level passed through "a triangular consolidation pattern identified by a resistance line connecting March 15 and March 27 highs and a support line connecting March 20 and April 3 lows."

• "If the breakout is bullish, which we suspect, bitcoin could climb above 80,000 during the next few weeks — if not earlier," 10x Research wrote.

A federal Manhattan jury on Friday found Terraform Labs and co-founder Do Kwon liable for securities fraud in a civil trial brought by the U.S. Securities and Exchange Commission, Bloomberg reports.

Why it matters: The 2022 collapse of Kwon's Terra stablecoin helped accelerate a brutal cryptocurrency downturn that obliterated billions in market value, wiped out many crypto investors — and eventually culminated in FTX's dramatic implosion, Axios' Kia Kokalitcheva notes.

• Kwon eventually went into hiding, sparking a wild extradition saga that spanned Montenegro, South Korea and the U.S.
• The SEC's complaint against Terraform and Kwon also raises questions about the commission's views on stablecoins, and whether they're securities.

Zooming in: The seven-person jury deliberated for less than two hours, finding that investors were misled about the stability of Terraform's UST stablecoin, which the company and Kwon contended was algorithmically pegged to the dollar.

• It also found that Kwon and Terraform falsely claimed that Korean payments app Chai used Terraform's blockchain tech for transactions.

What they're saying: "We are very disappointed with the verdict, which we do not believe is supported by the evidence," a Terraform spokesperson said in a statement to Bloomberg.

• "We continue to maintain that the SEC does not have the legal authority to bring this case at all, and we are carefully weighing our options and next steps."

What's next: Kwon is also facing criminal fraud charges in the U.S. and South Korea.

🇦🇷 Argentina's newly unveiled crypto regulation spurs critics. (The Block)

🕵️ Former IRS criminal investigations chief James Lee has joined blockchain forensics firm Chainalysis. (Decrypt)

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