Mango Markets Is Facing a Regulatory “Investigation” Ahead of the Eisenberg Crypto Fraud Trial
Avi Eisenberg, a crypto fraudster and thief accused of stealing more than $100 million from Mango Markets, is set to go to trial in the next few months. Mango Markets continues to face regulatory risks.
According to posts on the project’s Discord, the decentralized crypto exchange (DEX) is currently facing “investigations in the United States” aimed at stopping the theft in October 2022. The board of directors of the DEX, MangoDAO, is now voting to appoint someone to handle “US regulatory matters” on behalf of the DEX.
During the last bull cycle, Mango Markets was a premier on-chain trading platform for Solana-based investors. The company lost millions to aggressive trader Eisenberg, who was accused of stealing money from Mango Markets customers through illegal market manipulation. The Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Justice Department sued this trader as well as the founder of Mango Markets.
Mango Markets, meanwhile, is dealing with questions from regulators who only focused on the DEX because it was the target of a suspected crime. The posts did not name the regulators who asked questions, but a proposal being voted on outlines the investigations to be handled in connection with the SEC CFTC DOJ investigation into Eisenberg.
This situation highlights the dangers of building a permissionless trading infrastructure on blockchains and leaving their operations to decentralized autonomous organizations (DAOs). The precedent shows that crypto founders wrongly believed that these features would protect them from legal scrutiny. Both the SEC and CFTC filed lawsuits against DAOs through 2023.
Legal experts told AskFX that Mango Markets is vulnerable to regulation in the US due to its position in the crypto market. The lawsuits filed against Eisenberg revealed that Eisenberg made offers to U.S. traders that they believed trading services should be regulated.
Mango Labs, the former legal guardian of the DEX, is now taking a back seat. Dafydd durairaj, the CEO of Mango Labs, said that his company may have a strict legal conflict that would prevent it from fighting for DEX.
Click here to read more Mango Markets will resume crypto trading, SEC be damned.
This is a change from a year ago when Durairaj said Mango Labs was launching the DEX community, “even if the SEC wanted to file a suit.” According to archived forum posts, in exchange for support, the community repeatedly voted to give Mango Labs millions in crypto, which the company would use to cover its mounting legal costs.
Mango Markets community token holders can control the DEX with their MNGO tokens. In a Discord message on Wednesday, they were informed of the “regulatory issues” and presented a solution.
Adrian Brzezinski is A 29-year-old crypto developer who has worked for Mango Markets for many years suggested that his company CyberByte (which was founded three months ago) should act as a DEX representative before regulators.
CyberByte will have the ability to hire lawyers for the DEX and “participate in confidential and privileged communications with legal counsel to facilitate amicable resolutions to U.S. regulatory issues.”
According to Brzezinski, the DEX token holders would have the last word in every “solution”. Brzezinski asked for $250,000 to pay the new legal fees.
Token holders involved in the voting process unanimously approved his proposal on Friday. On the Discord server, a community asked for more information about how the proposal was put together.
Brzezinski refused to answer Discord questions before the vote. When contacted by AskFX, he declined to comment.
UPDATE (January 5, 2024, 3:22 p.m. UTC) Adds context to the text.
