In a ruling on 18 April by the United States (US) District Court for the Southern District of New York, a Manhattan jury found crypto trader Avraham Eisenberg guilty of fraud and market manipulation for his involvement in a $110 million heist from decentralised finance (DeFi) protocol Mango Markets in October 2022.
He was apprehended in Puerto Rico in December 2022, faced charges of commodities fraud, commodities manipulation, and wire fraud for his role in the scheme.
The jury's decision, reached after hours of deliberation following closing arguments on 17 April, will lead to Avraham’s sentencing on 29 July by New York District Court Judge Arun Subramanian.
He could face a maximum of 20 years in federal prison for his crimes.
US Attorney for the Southern District of New York Damian Williams, said in a Thursday press statement:
"This ground-breaking prosecution epitomises this office's ability to employ innovative methods and cutting-edge law enforcement tools to continue to protect all financial markets. The career prosecutors of this office continue their expertise in prosecuting financial fraud, one of our core priorities, and would-be financial criminals should think twice before daring to engage in illicit conduct on our watch."
The $110M Mango Markets Exploit
Describing himself as an "applied game theorist," Avraham engaged in trading under a false identity and manipulated the price of Mango's token, MNGO, as well as contracts linked to its value compared to the stablecoin USDC, according to prosecutors.
Allegedly exploiting a feature of the exchange allowing him to "borrow" against his assets, he withdrew $110 million in cryptocurrencies without intent to repay, as charged by the US authorities.
However, rather than borrowing, his actions were characterised as theft.
Shortly after the exploit, he anonymously proposed to the Mango Markets decentralised autonomous organisation (DAO), offering to return $67 million of his gains in exchange for immunity from charges and permission to keep the remainder.
After executing his trades on Mango Markets, he promptly departed Puerto Rico, his country of residence at the time, and travelled to Israel.
Upon his return to Puerto Rico on 26 December 2022, US authorities apprehended him.
Since then, he has remained in custody, as a judge deemed him a flight risk pending trial.
Prosecutors asserted that Avraham deliberately inflated the price of MNGO tokens to execute a premeditated fraud scheme against Mango Markets, a DeFi platform governed by smart contracts.
Assistant US Attorney Thomas Burnett said in closing arguments:
“He manipulated that price so he could trick the system into giving him money. He planned to take the money and run."
Defence Argued Avraham was Acting within the Law
Throughout a two-week trial, Avraham's legal team, led by crypto defence attorney Brian Klein, contended that his actions did not amount to criminal behaviour but rather constituted a "successful and legal trading strategy," yielding approximately $110 million from Mango Markets.
Despite returning around $67 million of the proceeds subsequent to the exploit, he retained over $40 million following a governance vote by the community.
However, the jury rejected this argument, agreeing with prosecutors' characterisation of Avraham's actions as "brazen" fraud and manipulation.
While Avraham's defence maintained that he operated within legal bounds, prosecutors presented compelling evidence to the jury, including internet searches for topics such as "statute of limitations market manipulation," "FBI surveillance," and "elements of fraud," as well as his flight to Israel after his identity as the exploiter was revealed.
After the verdict, Brian said:
"We're obviously disappointed, but we will keep fighting for our client. We plan to file a number of post-trial motions."
Potential Enforcement from US SEC and CFTC
During the trial, Avraham chose not to testify, yet he remained actively engaged in his defence, meticulously taking notes during testimonies and often providing suggestions for questions to his legal team.
Now that the criminal trial has reached a verdict, he may face additional civil enforcement actions from the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) filed in 2023.
These cases, previously on hold, may resume within two weeks following the conclusion of the criminal proceedings.