NEW YORK: A jailed trader accused of stealing US$110mil on the Mango Markets exchange faces a criminal trial this week that will test the reach of a US crackdown on cryptocurrencies.Prosecutors charged Avraham Eisenberg with manipulating Mango Markets futures contracts on Oct 11, 2022, to boost the price of swaps by 1,300% in 20 minutes.
He then “borrowed” from the exchange against the inflated value of those contracts, a move the government claims was a theft.
A jury was selected on Monday in a New York federal court, where groundbreaking crypto cases have played out.
FTX co-founder Sam Bankman-Fried was sentenced there last month to 25 years in prison for orchestrating a multibillion-dollar scheme, while Terraform Labs Pte and co-founder Do Kwon was found liable last Friday for fraud in a civil trial over the firm’s 2022 collapse, which wiped out US$40bil in investor assets.
Eisenberg’s jury includes a Millennium Partners employee who formerly worked at Goldman Sachs, a chief investment officer of a family office, a Broadway performer and choreographer, and a line producer for films and television.
Eisenberg, a self-described “applied game theorist”, claims his actions weren’t theft at all.
Rather, he said, he legally exploited a weakness in the decentralised finance (DeFi) application.
The trial will apparently be the first time a US criminal jury will weigh what type of “DeFi” transactions are legal.
In the crypto world, where digital blockchains govern who owns what, the virtual ecosystem is built around the notion that “code is law”.
It means that if something isn’t explicitly forbidden by terms of a crypto platform, then the government can’t intercede.
But prosecutors said those rules can’t protect traders against possible criminal charges for market manipulation or fraud.
“It touches on the big argument within crypto: is code law?” said Chris Janczewski, head of global investigations at TRM Labs.
“If the code allows somebody to do that, does the actual law? Obviously, the government took a different approach that code is not law.
“Just because there is an opportunity to exploit it does not mean that it’s legal.”
Eisenberg targeted Mango Markets, a decentralised autonomous organisation (DAO) that lets people borrow, lend and trade cryptocurrencies and sets its own rules for participants.
The theft alleged by prosecutors in this week’s trial is one of the largest in criminal cases involving a DAO.
Four days after his transactions on the exchange, Eisenberg posted on Twitter: “I was involved with a team that operated a highly profitable trading strategy last week.”
He also said he believed “all of our actions were legal open-market actions, using the protocol as designed”.
In a deal with the Mango DAO, Eisenberg agreed to return US$67mil of what he’d gotten from depositors in exchange for them agreeing to release him from legal claims and not pursuing his prosecution.
Eisenberg left Puerto Rico, where he was living, the day after his Mango trades and flew to Israel.
When he returned to Puerto Rico on Dec 26, 2022, US agents arrested him.
He’s been in jail ever since, as a judge ruled he poses a risk of fleeing before trial. — Bloomberg
