Judge Overturns Avraham Eisenberg Convictions in Mango Markets Case

A federal judge has overturned key convictions against Avraham Eisenberg, who was accused of exploiting the decentralized exchange Mango Markets to the tune of $110 million. Judge Arun Subramanian vacated Eisenberg’s convictions for commodities fraud and market manipulation, citing a lack of evidence that he made materially false representations. The court also acquitted Eisenberg of a third charge, significantly weakening the government’s case against him.

Eisenberg was initially found guilty in April 2024 after a jury concluded that he manipulated the price of Mango’s MNGO token by over 1,300% within minutes. He then used the inflated value as collateral to drain the protocol of $110 million in crypto. The Department of Justice argued that Eisenberg’s actions constituted a calculated deception of the smart contract system. However, Eisenberg’s defense maintained that he simply exploited flawed but open code without lying or misleading the protocol. Judge Subramanian agreed with this defense, noting that the platform was “permissionless and automatic,” making it difficult to establish a legal basis for fraud. “There was insufficient evidence of falsity,” he wrote.

The ruling also rejected New York as the proper venue for the trial, as Eisenberg was based in Puerto Rico during the trades. The judge dismissed the DOJ’s attempts to tie the case to the state through a Mango user in Poughkeepsie and a third-party service provider in Manhattan. The vacated charges now leave the Justice Department to decide whether to pursue the case again. However, recent signals from the Trump administration suggest a cooling stance on crypto-related enforcement.

Despite the court win, Eisenberg remains in federal custody. Earlier this month, he was sentenced to nearly four years in prison on an unrelated charge of child pornography possession, based on evidence found during his 2022 arrest in Puerto Rico. Eisenberg still faces separate civil cases brought by the SEC and CFTC. On October 11, 2022, Mango Markets was the victim of an attack in which approximately $110 million was drained from its treasury. Shortly after the attack, Avraham Eisenberg came forward as the perpetrator, asserting that the exploit was merely a “highly profitable trading strategy” and claiming it was conducted within the bounds of legality and the protocol’s intended design.

According to prosecutors, Eisenberg utilized two accounts to engage in manipulative trading involving futures contracts tied to the values of Mango’s token MNGO and the stablecoin USD Coin. Last month, US federal prosecutors asked for a prison sentence of up to 6.5 years for Eisenberg. In their filing, prosecutors emphasized the severity of Eisenberg’s actions, stating that his scheme not only defrauded investors of over $100 million but also forced Mango Markets to shut down.

The overturning of Eisenberg’s convictions raises significant questions about the legal framework surrounding decentralized finance (DeFi) and the interpretation of smart contract mechanics. The ruling suggests that the “code is law” defense, which argues that actions taken within the bounds of a protocol’s code cannot be considered fraudulent, may have more legal merit than previously thought. This decision could set a precedent for future cases involving DeFi platforms and smart contract exploits, potentially influencing how regulators and courts approach similar incidents.

The outcome of this case also highlights the complexities of prosecuting crypto-related crimes, particularly when the actions in question involve decentralized and permissionless systems. The judge’s decision to vacate the convictions underscores the challenges in establishing fraudulent intent in such environments, where the lines between legal exploitation and illegal manipulation can be blurred. As the crypto industry continues to evolve, this ruling may prompt further debate and clarification on the legal standards applicable to DeFi and smart contract interactions.