CFTC Charges Avraham Eisenberg in Mango Market Exploit
- The CFTC sued Avraham Eisenberg, a digital artist, for two charges of market manipulation related to Mango Market exploit.
- It claims that Eisenberg “engaged in a manipulative and deceptive scheme to artificially inflate the price of swaps offered by the DeFi platform.”
- Gretchen Lowe stated that the regulator will use all available enforcement tools to aggressively pursue fraud and manipulation charges.
On January 9, the United States Commodity Futures Trading Commission (CFTC) filed a lawsuit against Avraham Eisenberg, a self-described digital artist, for two charges of market manipulation related to last year’s major exploit of decentralized financial platform Mango Markets. Eisenberg is currently in police custody after being detained on related charges on December 27.
According to the regulatory agency, between October 11, 2022, and October 15, 2022, Eisenberg “engaged in a manipulative and deceptive scheme to artificially inflate the price of swaps offered by Mango Markets, a decentralized digital asset exchange, culminating in the misappropriation of over $100 million from the platform.”
Moreover, the self-described digital artist allegedly purchased more than 400 million MNGO-USDC swaps on Mango Markets with a position size of around $19 million. The CFTC claims that the defendant then purchased “large quantities” of MNGO tokens on the Oracle Exchanges over a span of less than 30 minutes.
The rise in the price of MNGO was advantageous to Eisenberg, who borrowed cryptocurrencies worth around $144 million from Mango Markets at a higher price. After this, the price of Mango Market’s native token fell, leaving the platform illiquid. The CFTC stated that the artist’s actions resulted in a “wash transaction.”
Acting Director of Enforcement Gretchen Lowe stated that CFTC “will use all available enforcement tools to aggressively pursue fraud and manipulation regardless of the technology that is utilized. The CEA prohibits deception and swap manipulation, whether on a registered swap execution facility or on a decentralized blockchain-based trading platform.”
The regulator further claimed:
“The goal of Defendant’s scheme was straightforward: to artificially inflate the value of his swap contract holdings on Mango Markets through price manipulation, so that he could ‘borrow’ a significant amount of digital assets that he had no intention to repay.”
However, the defendant’s manipulation led to an illusion about the value of his collateral. In order to stop manipulating MNGO and the MNGO-USDC Swaps after “borrowing” digital assets from Mango Markets, the defendant transferred the borrowed digital assets out of his Mango Markets account.
The value of his MNGO-USDC swaps fell simultaneously as the price of MNGO dropped below its pre-manipulation level. This resulted in the borrowings of the defendant becoming severely undercollateralized, leaving Mango Markets with a nearly empty hand.
In a tweet on October 15, 2022, Eisenberg confessed that he was behind the Mango Markets attack and argued that his actions were justified. Eisenberg has previously made an anonymous demand for a bug bounty of 70 million USD Coin (USDC), or $70 million. The Mango Markets community voted against pursuing legal action against him in favor of letting him keep the $47 million.
“All mango depositors will be made whole. By voting for this proposal, mango token holders agree to pay off the bad debt with the treasury, and waive any potential claims against accounts with bad debt, and will not pursue any criminal investigations or freezing of funds once the tokens are sent back as described above,” read the governance proposal.
It is interesting to note that on December 27, Eisenberg was taken into custody by the U.S. Justice Department and charged with one count of commodities fraud and one count of commodities manipulation. The CFTC has accused him of breaking the Commodities Exchange Act and several other commission regulations.