NEW YORK – To federal prosecutors, Avi Eisenberg’s $110 million crypto trade on Mango Markets put a digital twist on an old scam. But to the DeFi trader’s defense team, it was a legitimate windfall from the risky world of crypto, where finance’s old rules don’t apply.
Each side presented crisp opening statements Tuesday in the U.S. government’s commodities manipulation and fraud trial against Eisenberg. Their competing narratives gave the courtroom’s 15 jurors a taste of the highly complex two-week trial ahead.
At issue is the October 2022 trade where Eisenberg turned $13 million of crypto into $110 million by draining the trading venue Mango Markets of all of its assets, in part by trading against himself.
He did so by making a massive bet on the future price of MNGO tokens and then allegedly gaming the crypto markets to drive up their value. Once the token was up over 1,000% he borrowed against their inflated value to capture virtually all of the crypto on MNGO, rendering it insolvent.
These kinds of trades aren’t allowed at the banks, swaps shops and equities exchanges that power traditional financial markets and are closely regulated in the U.S. Mango Markets isn’t like those institutions; rather than a company, it’s a set of computer programs that operate on a blockchain where the old rules don’t so easily apply.
But they should, according to federal prosecutors bringing this landmark criminal case against Eisenberg, the first crypto trader facing potential jail time for allegedly breaking commodities rules while trading in DeFi.
Assistant U.S. Attorney Tian Huang kicked off the government’s case by comparing Eisenberg’s “scam” to a con artist who lures his victim into loaning him money by offering a “beautiful, fake diamond ring” as collateral.
“He wasn’t really borrowing, he was stealing,” she said in her opening statement, adding “he committed commodities fraud and market manipulation.”
The government plans to use Eisenberg’s private chats, public trades and flight records to prove he knew his “huge, fake bets” were illegal.
Eisenberg’s five-person trial team hinted they intend to use crypto’s nascent state and cloudy regulatory status to their advantage. In his opening statement, Sanford Talkin said the government “is not going to get out of the gate” in its attempts to apply commodities rules to highly speculative tokens, like MNGO.
Regardless, their defense appears to hinge on the proclaimed legitimacy of Eisenberg’s actions in a trading landscape punctuated by high-risk, high reward bets.
“Avi Eisenberg risked $13 million of his own dollars” to net $110 million from Mango Markets, Talkin said, adding “he could have lost everything.”
He said Mango Markets’ traders understood and accepted the risks of playing in this murky field. Eisenberg just happened to hit it big.
“It is in this world that Avi Eisenberg operated a successful, legal, trading strategy,” Talkin said.