A crypto trader who devised a strategy to successfully exploited the Mango markets and unlawfully took away $110 million from the crypto exchange has been convicted of fraud by the US courts.
The crypto trader going by the name of Avraham Eisenberg, age 28 was found guilty on accounts of
- Commodities fraud
- Commodities manipulation and
- wire fraud
This is related to his activities dating back to October 11, 2022,
How Avraham Eisenberg carried out the fraud?
On the fateful day it took Avraham Eisenberg a 20 minute trading activity to boost the prices of the future contract of MNGO, the native token of the mango markets.
His manipulation boosted the price associated with the futures contract by a whopping 1300% in this short 20 minutes time frame.
The appreciation in price was witnessed on its USDC stablecoin pair.
The exchange would let a user borrow against his holding and this is a feature that Avraham Eisenberg exploited.
He borrowed $110 million against his holdings and withdrew the entire amount. He did it with the intent to exploit the exchange and had no intention to pay back.
According to the prosecutor: Avraham Eisenberg manipulated a pump with the intent of executing a fraud.
He executed his scheme in a manner that the MangoMarkets Dex could be tricked.
The Mango Markets is a decentralized exchange with a DAO (Decentralised Autonomous Organization) responsible in place to oversee the operations of the DEX.
Since a DEX runs on a series of smart contracts therefore his plan was to exploit the working of the exchange.
The Mango markets offers the functionality of letting its users
- trade crypto
- Borrow
- lend crypto
Avraham Eisenberg who is a self proclaimed game theorist managed to trick the systems and manipulate the price so that the system could give him the funds.
As per the Assistant US attorney Thomas Burnett's closing argument
He planned to take the money and run.
Looking back at the chain of events a few days after the succesful exploit Avraham Eisenberg even agreed to return $67 million to the exchange if the DAO did not pursue legal actions against him and also did not freeze his remaining assets.
The long chase
Avraham Eisenberg was originally living in Puerto Rico and after he successfully exploited the Mango Markets he fled to Israel.
It was on 22nd December 2022 that he returned to Puerto Rico where the US agents were waiting for him and they arrested him.
Looking at his track record and earlier tendencies to flee the judge observed and ruled that he posed a risk of fleeing before trial.
As a result he has been in jail ever since his arrest in Puerto Rico.
Avraham Eisenberg’s side of story
As per the legal defence of Avraham Eisenberg attorney Brian Klein presenting his closing argument that
His client Avraham Eisenberg only used legal strategy that was permitted under the Mango markets DEX exchange rules.
He went to the extent of saying that Avraham Eisenberg ...
engaged in a successful and legal trading strategy, one in which he put his own money at risk
He said that Avraham Eisenberg
“wholly complied" with smart contracts that controlled the decentralized finance platform, which only warned users: “This is unaudited software, use it at your own risk."
Interestingly neither Avraham Eisenbergor his attorney dispute the fact that as part of the strategy a series of trades that took opposite short and long positions.
In Avraham Eisenberg's defense Klein claims
“It’s not illegal to take big risks,"
The report is prepared based on
The case is US v. Eisenberg, 23-cr-00010, US District Court, Southern District of New York (Manhattan).
Final thoughts
A DEX may involve a series of smart contracts and these systems are put in place to facilitate trades and other crypto related functionalities however anyone found exploiting the loopholes would find himself on the wrong side of law and should be prepared to face the legal consequences.
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