The Commodity Futures Trading Commission (CFTC) has filed a civil lawsuit against Avraham Eisenberg, alleging a fraudulent scam to obtain over $110 million in digital assets from a decentralized digital asset exchange.
The enforcement action has been filed in the U.S. District Court for the Southern District of New York. In a parallel action, a criminal complaint against Eisenberg has been unsealed by the U.S. Attorney’s Office for the Southern District of New York. Eisenberg is being charged with commodities fraud and commodities manipulation.
The CFTC complaint alleges that on October 11, 2022, Eisenberg misappropriated over $110 million in digital assets from Mango Markets, a decentralized crypto exchange, through “oracle manipulation.”
Eisenberg allegedly created two anonymous accounts on Mango Markets, which he used to establish large leveraged positions in a swap contract whose value was based upon the relative price of MNGO, the “native” token of Mango Markets, and USDC, a stablecoin. Eisenberg then pumped up the price of MNGO by rapidly purchasing substantial quantities of MNGO on three digital asset exchanges that were the inputs for the “oracle,” or data feed, that Mango Markets used to determine the value of Eisenberg’s swap positions.
Eisenberg’s actions allegedly caused the price of MNGO to rise by over 13-fold during a 30-minute span, resulting in a temporary, artificial spike in the value of Eisenberg’s swap positions. Eisenberg then cashed out his profits by using the artificially inflated value of his swaps as collateral to withdraw over $110 million in digital assets from Mango Markets, draining the platform of most of the assets.
Following the ploy, the CFTC claimed he attempted to evade liability by returning a portion of the misappropriated digital assets on the condition that Mango Markets agreed, among other things, to “not pursue any criminal investigations or freezing of funds.”
Eisenberg ultimately returned approximately $67 million to Mango Markets, while retaining approximately $47 million worth of various digital assets.
“The CFTC will use all available enforcement tools to aggressively pursue fraud and manipulation regardless of the technology that is utilized,” said Acting Director of Enforcement Gretchen Lowe. “The CEA prohibits deception and swap manipulation, whether on a registered swap execution facility or on a decentralized blockchain-based trading platform.”
The CFTC seeks, among other relief, civil monetary penalties, disgorgement of any ill-gotten gains, restitution, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act (CEA), as charged.
