A jury has unanimously convicted Avi Eisenberg in the US Department of Justice's first case involving cryptocurrency open-market manipulation, the DOJ announced Thursday.
The jury found Eisenberg guilty of commodities fraud, commodities market manipulation, and wire fraud in connection with the manipulation on a decentralized cryptocurrency exchange called Mango Markets.
Eisenberg is scheduled to be sentenced on July 29 and is facing "a maximum penalty of 10 years in prison on the commodities fraud count and the commodities manipulation count, and a maximum penalty of 20 years in prison on the wire fraud count," the DOJ said.
On the Mango Markets exchange, Eisenberg was "engaged in a scheme to fraudulently obtain approximately $110 million worth of cryptocurrency from Mango Markets and its customers by artificially manipulating the price of certain perpetual futures contracts," the DOJ said. The scheme impacted both investors trading and the exchange itself, which had to suspend operations after Eisenberg's attack made the exchange insolvent.
Nicole M. Argentieri, the principal deputy assistant attorney general who heads the DOJ's criminal division, said that Eisenberg's manipulative trading scheme "puts our financial markets and investors at risk."
"This prosecution—the first involving the manipulation of cryptocurrency through open-market trades—demonstrates the Criminal Division’s commitment to protecting US financial markets and holding wrongdoers accountable, no matter what mechanism they use to commit manipulation and fraud,” Argentieri said.
Mango Labs has similarly sued Eisenberg over the price manipulation scheme, but that lawsuit was stayed until the DOJ's case was resolved. Mango Labs is expecting a status update today from the US government and is hoping to proceed with its lawsuit.
Ars could not immediately reach Mango Labs for comment.
Eisenberg's lawyer, Brian Klein, provided the same statement to Ars, confirming that Eisenberg's legal team is "obviously disappointed" but "will keep fighting for our client."
How the Mango Markets scheme worked
Mango Labs has accused Eisenberg of being a "notorious cryptocurrency market manipulator," noting in its complaint that he has a "history of attacking multiple cryptocurrency platforms and manipulating cryptocurrency markets." That history includes allegedly embezzling $14 million in 2021 while Eisenberg was working as a developer for another decentralized marketplace called Fortress, Mango Labs' complaint said.
Eisenberg's attack on Mango Markets intended to grab tens of millions more than the alleged Fortress attack. When Eisenberg was first charged, the DOJ explained how his Mango Markets price manipulation scheme worked.
On Mango Markets, investors can "purchase and borrow cryptocurrencies and cryptocurrency-related financial products," including buying and selling "perpetual futures contracts."
"When an investor buys or sells a perpetual for a particular cryptocurrency, the investor is not buying or selling that cryptocurrency but is, instead, buying or selling exposure to future movements in the value of that cryptocurrency relative to another cryptocurrency," the DOJ explained.
Understanding this, Eisenberg opened separate accounts to either buy or sell perpetuals of a cryptocurrency called MNGO, then sold the perpetuals to himself while making a series of large MNGO purchases that drove up the cryptocurrency price. According to the SEC, Eisenberg "controlled, sold, and contemporaneously purchased purported perpetual futures contracts with respect to approximately 488 million MNGO tokens (out of approximately 500 million tokens in circulation)."
By purchasing so much of the otherwise "thinly traded" MNGO cryptocurrency, the SEC said, Eisenberg was able to artificially inflate the prices of both the cryptocurrency and the perpetuals, ultimately causing "the price of MNGO Perpetuals on Mango Markets to rise approximately 1300 percent in a period of approximately 20 minutes." The price of MNGO was artificially raised by more than 2,200 percent at one point, the SEC claimed.
Once the value of the perpetuals was basically maxed out, Eisenberg then borrowed and withdrew "approximately $110 million worth of various cryptocurrencies from Mango Markets, which came from deposits of other investors in the Mango Markets exchange," virtually wiping out the exchange while causing the price of MNGO perpetuals to "collapse."
"Eisenberg withdrew nearly all then-available funds from Mango Markets," the DOJ said. "When Eisenberg borrowed and withdrew this cryptocurrency, he had no intention of repaying the borrowed funds but rather intended to steal those funds."
When Eisenberg first faced down lawsuits over the Mango Markets scheme—including complaints filed by the Commodities Futures Trading Commission and the SEC—he took to Twitter to defend his price manipulation as "a highly profitable trading strategy."
Eisenberg has about 40,000 followers on Twitter (now known as X) but stopped tweeting in 2022. At that time, many Twitter users challenged the ethics of his tactics and advised him to lawyer up. One follower commented that "rebranding market manipulation that resulted in a protocol’s insolvency as a 'highly profitable trading strategy' is a bold move. While Mango should have had more risk mitigation processes in place, coercing a $47 million bounty from the protocol seems less than ethical."
But Eisenberg claimed that he believed "all of our actions were legal open market actions, using the protocol as designed, even if the development team did not fully anticipate all the consequences of setting parameters the way they are."
Mango Labs has complained that in these tweets, Eisenberg "bragged about his attack" while protecting his "ill-gotten gains," only returning $67 million to the platform after forcing it "under duress" into "an unenforceable settlement agreement." Through that since-discarded agreement, Mango Labs had to agree not to pursue charges against Eisenberg.
In tweets, Eisenberg claimed that the settlement agreement was intended to make "all users whole as soon as possible."
An assistant attorney general, Kenneth A. Polite, Jr., confirmed that the DOJ would continue to crack down on cryptocurrency schemes, apparently now including a strategy to nab offenders behind market-manipulation schemes. Eisenberg's conviction follows high-profile recent convictions and arrests of other accused crypto scammers, including Sam Bankman-Fried and Do Kwon.
"Exploiting decentralized finance platforms is the new frontier of old school financial crimes in which criminals abuse emerging technologies for their own personal gain," Polite said in a DOJ press release. "With this prosecution, the Criminal Division is sending the message that no matter the mechanism used to commit market manipulation and fraud, we will work to hold those responsible to account.”
