Avraham Eisenberg

Regulatory action against Mango Markets exploiter is a win for DeFi — Moody’s

The SEC and CFTC taking action against the alleged fraudster shows that decentralized finance is becoming a “safer and more welcoming environment,” according to credit rating firm Moody’s.

Recent charges brought against Mango Markets exploiter Avraham Eisenberg will have a positive impact on the decentralized finance (DeFi) space, according to credit rating firm Moody’s. 

In a Jan. 31 note from Moody’s Investor Service, assistant vice president of decentralized finance Cristiano Ventricelli stated that enforcement actions brought by the two leading U.S. market regulators in January mean that DeFi is moving toward a “safer and more welcoming environment.”

“The fact that both the SEC and CFTC took action against market manipulation by an alleged rogue trader is a credit positive for the industry as a whole.

Ventricelli stated that these actions could “improve oversight of the DeFi industry” which has for the most part been a difficult area to regulate due to the lack of clarity regarding jurisdiction over open-source protocols.

On Jan. 20, the United States Securities and Exchange Commission (SEC) filed charges against the alleged market manipulator, while the Commodity Futures Trading Commission (CFTC) filed charges against Eisenberg on Jan. 9.

Ventricelli made a similar comment in an article tweeted out by Moody’s on Jan. 26 but he went into more detail in the Jan. 31 note.

The report suggested that DeFi is “no longer a no man’s land,” referring to a June speech by European Central Bank President Christine Lagarde to the European Parliament, where she argued that Europe’s crypto legislation, Markets in Crypto-Assets (MiCA), should be expanded to include a framework for decentralized finance.

Ventricelli suggested that this safer environment could lead to wider adoption among institutional investors “such as banks,” as well as retail investors.

Related: DeFi sees exploits and exit scam drama in the last week of 2022: Finance Redefined

CFTC’s filing alleged that Eisenberg “engaged in a manipulative and deceptive scheme to artificially inflate the price of swaps offered by Mango Markets.”

The SEC filing alleged that Eisenberg’s actions “left the platform at a deficit” when the security price returned to its pre-manipulation level.

Mango Labs, the company behind Mango Markets, filed its own lawsuit against Eisenberg on Jan. 25, demanding $47 million in damages plus interest over his alleged October exploit.

Mango Markets exploiter arrested on fraud charges — Maybe it was illegal

The Mango Markets exploiter previously called his attack on the crypto exchange “legal open market actions.”

The crypto trader behind the $110 million exploit of decentralized exchange Mango Markets has been arrested in Puerto Rico — and charged with market manipulation and fraud.

According to a previously sealed complaint filed with the Southern District of New York and made public on Dec. 27, the Federal Bureau of Investigation (FBI) pinned Avraham Eisenberg with one count commodities fraud and one count of commodities manipulation in relation to his exploit of Mango Markets.

Eisenberg’s Oct. 11 exploit of Mango Markets worked by manipulating the value of the platform’s native token, MNGO, artificially inflating its price relative to USD Coin (USDC).

Eisenberg and his team then took out “massive loans” against its inflated collateral, which drained Mango’s treasury of around $110 million worth of various cryptocurrencies.

A day later on Oct. 12, Mango entered into negotiations with Eisenberg for the return of the funds.

Days later on Oct. 15, Mango Markets confirmed that $67 million in various crypto assets had been returned.

Eisenberg then publicly fessed up to exploiting the crypto exchange, stating that he was involved in a team that “operated a highly profitable trading strategy” and said that he believed all his actions were “legal open market actions.”

The FBI in its recent complaint stated the actions by Eisenberg constitute both fraud and market manipulation, as he “willfully and knowingly” engaged in a scheme involving the “intentional and artificial manipulation” of the price of perpetual futures on Mango Markets.

This ultimately allowed him to drain $110 million worth of cryptocurrencies — most of which came from the deposits of other Mango Markets investors.

“Due to [Eisenberg’s] withdrawals, other investors with deposits on Mango Markets lost much, or all, of those deposits,” explained FBI special agent Brandon Racz in the Dec. 23 complaint.

Racz said Eisenberg may have known his actions were illegal as well, as the day after the Mango Markets exploit, Eisenberg flew from the United States to Israel.

“Based on the timing of the flight, the travel appears to have been an effort to avoid apprehension by law enforcement in the immediate aftermath of the Market Manipulation Scheme,” he said.

Eisenberg was arrested on Dec. 26 in Puerto Rico, according to a filing from the United States Attorney Southern District of New York.

Related: How low liquidity led to Mango Markets losing over $116 million

In November, Eisenberg tried his luck again, this time on decentralized finance (DeFi) protocol Aave, taking out a loan of 40 million CRV tokens from Aave and betting on a drop in price through a series of sophisticated short sales.

However, the plan ultimately didn’t succeed as the price actually rose during the attack, resulting in losses due to the significant short position.

Mango Markets exploiter said actions were ‘legal,’ but was it?

A crypto lawyer believes the Mango Markets exploiter Avraham Eisenberg could still face consequences despite users supposedly agreeing not to pursue legal action.

The $117 million Mango Markets exploiter has defended that their actions were ‘legal,’ but a lawyer suggests that they could still face consequences.

Self-described digital art dealer Avraham Eisenberg, outed himself as the exploiter in a series of tweets on Oct. 15 claiming he and a team undertook a “highly profitable trading strategy” and that it was “legal open market actions, using the protocol as designed.”

The Oct. 11 exploit worked through Eisenberg and his team manipulating the value of their posted collateral — the platforms’ native token MNGO — to higher prices, then taking out significant loans against their inflated collateral which drained Mango’s treasury.

Michael Bacina, partner at Australian law firm PiperAlderman told Cointelegraph “if this had occurred in a regulated financial market it would be likely seen as market manipulation.”

“Price manipulation is a cousin of misrepresentation, and in many jurisdictions engaging in misleading and deceptive conduct is unlawful and grounds for legal claims.”

Eisenberg has committed to “making all users whole” and negotiations between him and the Mango Decentralized Autonomous Organization (DAO) have resulted in the DAO voting that Eisenberg be allowed to keep $47 million as a “bug bounty,” while the rest will be sent back to the treasury.

A stipulation as part of the proposal states MNGO token holders “will not pursue any criminal investigations or freezing of funds” as Eisenburg has sent back the agreed portion of the exploited cryptocurrency.

However, Bacina said it’s “unlikely” that Eisenburg would be released from all liability, even from those that voted for the proposal, given the wording of the proposal are “weak,” commenting: 

“The wording of the proposal is weak and the circumstances are such that the offer of a release are questionable.”

That being said, Bacina said there might be a “limited commercial incentive” to sue Eisenburg as any legal claims would be reduced by the amount a member received due to the proposal.

“Assuming claims survive the proposal, any claims would still need to be reduced by any amounts which had been received by a member as a result of the proposal, which may mean many members have limited commercial incentive to sue Mr Eisenberg,” he explained. 

Related Wintermute repays $92M TrueFi loan on time despite suffering $160M hack

Part of the $67 million worth of crypto returned to the platform will now be used to reimburse affected users under the reimbursement plan approved by the DAO.

Eisenberg maintains the exploited crypto he returned is similar to automatic deleveraging on cryptocurrency exchanges where a portion of profits from profitable traders is recovered to cover losses by the exchange.

Cointelegraph contacted Eisenberg for comment but did not immediately receive a response.

Mango Markets exploiter said actions were ‘legal,’ but were they?

A crypto lawyer believes the Mango Markets exploiter Avraham Eisenberg could still face consequences despite users supposedly agreeing not to pursue legal action.

The $117 million Mango Markets exploiter has defended his actions as “legal,” but a lawyer suggests that they could still face consequences.

Self-described digital art dealer Avraham Eisenberg outed himself as the exploiter in a series of tweets on Oct. 15, claiming he and a team undertook a “highly profitable trading strategy” and that it was “legal open market actions, using the protocol as designed.”

The Oct. 11 exploit worked through Eisenberg and his team manipulating the value of their posted collateral — the platforms’ native token, MNGO — to higher prices, then taking out significant loans against their inflated collateral, which drained Mango’s treasury.

Michael Bacina, partner at Australian law firm PiperAlderman, told Cointelegraph, “If this had occurred in a regulated financial market, it would be likely seen as market manipulation.”

“Price manipulation is a cousin of misrepresentation, and in many jurisdictions, engaging in misleading and deceptive conduct is unlawful and grounds for legal claims.”

Eisenberg has committed to “making all users whole,” and negotiations between him and the Mango decentralized autonomous organization have resulted in the DAO voting that Eisenberg is allowed to keep $47 million as a “bug bounty” while the rest will be sent back to the treasury.

A stipulation as part of the proposal states that MNGO tokenholders “will not pursue any criminal investigations or freezing of funds,” as Eisenburg has sent back the agreed portion of the exploited cryptocurrency.

However, Bacina said it’s “unlikely” that Eisenburg would be released from all liability, even from those that voted for the proposal, given the wording of the proposal is “weak,” commenting: 

“The wording of the proposal is weak and the circumstances are such that the offer of a release is questionable.”

That being said, Bacina said there might be a “limited commercial incentive” to sue Eisenburg, as any legal claims would be reduced by the amount a member received due to the proposal.

“Assuming claims survive the proposal, any claims would still need to be reduced by any amounts which had been received by a member as a result of the proposal, which may mean many members have limited commercial incentive to sue Mr. Eisenberg,” he explained. 

Related: Wintermute repays $92M TrueFi loan on time despite suffering $160M hack

Part of the $67 million worth of crypto returned to the platform will now be used to reimburse affected users under the reimbursement plan approved by the DAO.

Eisenberg maintains that the exploited crypto he returned is similar to automatic deleveraging on cryptocurrency exchanges where a portion of profits from profitable traders is recovered to cover losses by the exchange.

Cointelegraph contacted Eisenberg for comment but did not immediately receive a response.