Crypto Manipulation Scheme Allegedly Worth $110 Million

The prosecution alleges that Avraham Eisenberg manipulated Mango Markets, a decentralized exchange. A civil complaint was filed last month by the SEC and the CFTC.

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Authorities say that a man is facing criminal and civil charges in the U.S. for manipulating trading on the decentralized exchange Mango Markets. 

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After being arrested on Dec. 26 in San Juan, Puerto Rico, Avraham Eisenberg, 27, made his first appearance at the federal court in Manhattan Thursday afternoon, the Justice Department reported. Associated with what prosecutors say was the manipulation of Mango Markets, he is charged with commodities fraud, commodities market manipulation, and wire fraud. 

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A plea hearing will be held on Feb. 14 for Mr. Eisenberg, who will remain in police custody. The prosecutors and Eisenberg's attorney are negotiating a bail package, said Brian Klein, a partner at Waymaker LLP. 

A civil action was brought against Mr. Eisenberg by the Securities and Exchange Commission and the Commodity Futures Trading Commission last month. As the first enforcement action against a decentralized exchange involving alleged manipulation, the CFTC said it was the first of its kind. 

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Authorities in the Southern District of New York charged Eisenberg with making more than $110 million last October as part of a fraudulent scheme that manipulated the price of MNGO, Mango Markets' own cryptocurrency. 

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Mr. Eisenberg allegedly traded perpetual futures for MNGO tokens on Mango Markets using an account he controlled and bought similar futures using another account. The derivative contracts' value was determined by Mango Markets using three digital asset exchanges where MNGO was artificially pumped up. Prosecutors say Eisenberg effectively emptied Mango Markets of most of the assets that other users had deposited by borrowing and withdrawing about $110 million from his MNGO futures positions. 

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Mr. Eisenberg kept about $47 million worth of digital assets, while returning more than half of them to the platform to avoid liability.

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According to the SEC's complaint, Eisenberg discussed publicly how he and his team made millions in crypto using profitable trading strategies on Twitter, calling himself an "applied game theorist."

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A highly profitable trading strategy was implemented by a team I was part of last week. Although the development team did not fully anticipate all the consequences of setting parameters as they are, I believe all our actions were legal open market actions, using the protocol as designed,” Mr. Eisenberg wrote in a tweet on Oct. 15, according to the SEC complaint. You are not prohibited from understanding a financial product better than the people who invented it or from being smarter than your counterparties in a swap transaction." 

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The DeFi market has gained traction in recent years, but there remain concerns over its risks. Decentralized financial protocols, or DeFis, are financial services offered on public blockchains.