Crypto Trader

The fallout continued last week for embattled crypto trader Avraham Eisenberg, as Mango Labs filed a lawsuit in the Southern District of New York to recover $47 million Eisenberg drained from the loan platform. decentralized crypto Mango Markets by manipulating the value of Mango Markets native token. The Mango Labs lawsuit is just the latest in a series of actions against Eisenberg, who was arrested by U.S. law enforcement officials in Puerto Rico in December and charged by the Justice Department (” DOJ”) of fraud and commodity manipulation. After his arrest, the Commodity Futures Trading Commission (“CFTC”), United States Security and Exchange Commission(“SEC”), and now Mango Laboratories made parallel claims against Eisenberg.

Eisenberg’s alleged scheme essentially involved taking advantage of the fact that the decentralized platform Mango Markets allowed investors to borrow cryptocurrency based on the value of the investor’s assets deposited as collateral on the platform. . Eisenberg reportedly took advantage of this feature by selling large amounts of Mango Markets native token, MNGO, to another account he controlled, which artificially increased the value of the token by more than 2,200%. Eisenberg used the inflated value of the token to borrow and withdraw approximately $114 million of various cryptocurrencies from Mango Markets, draining all assets from the platform and harming other investors. Soon after, Eisenberg publicly defended his actions, which he called a “highly profitable business strategy”, “legal open market actions, using the protocol as it was designed, even though the development team did not fully anticipate all the consequences of setting the parameters”. as they are.” The DOJ, SEC, CFTC and Mango Markets disagree and allege that Eisenberg’s conduct constitutes unlawful market manipulation.

The dispute over whether Eisenberg’s conduct is actionable fraud or market manipulation seems poised to turn on whether Eisenberg made misrepresentations or failed to disclose material facts, which made his actions deceptive in the circumstances. Actions taken by Eisenberg that potentially fit these criteria include selling MNGO tokens to himself in order to artificially inflate the price, as well as borrowing and withdrawing assets using the artificially inflated MNGO tokens as collateral, knowing that it would not repay the borrowed assets. and would make MNGO tokens artificially overvalued.

The case has significant implications for cryptocurrency trading markets and decentralized exchanges, which have seen many “pump and dump” systems over the years. In many ways, Eisenberg’s scheme resembles a traditional “pump and dump” scheme in that he deceptively profited from artificially inflating a token’s value at the expense of other investors. What separates Eisenberg’s conduct from the standard “pump and dump” scheme is that he was able to inflate the value of the MNGO token by trading it between accounts he controlled (without enticing unsuspecting investors to participate in the “pump” part of the scheme), and was able to cash in on his scheme by converting the inflated value of his MNGO tokens into other cryptocurrencies by exploiting the design of the platform. The fact that Eisenberg appears to have operated within the parameters of the mango market exchange is unlikely to help him avoid liability for fraud or market manipulation. Like “pump and dump” or other market manipulation schemes, the potential criminal offense arises not from violating the rules of the platform, but from deceptively operating those rules in a way who causes harm to others.

Thus, solving these cases will go a long way in distinguishing between opportunistic trading strategies and illegal market manipulation.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.