Commodity Futures Trading Commission takes action against digital assets scheme

The Commodity Futures Trading Commission filed a civil enforcement action this week against Avraham Eisenberg for an alleged fraudulent and manipulative digital assets scheme.

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The scheme allegedly allowed Eisenberg to unlawfully obtain over $110 million in digital assets from a purported decentralized digital asset exchange. The enforcement action was filed in the U.S. District Court for the Southern District of New York. It is the CFTC’s first enforcement action for a fraudulent or manipulative scheme involving trading on a supposed decentralized digital asset platform, sometimes called “oracle manipulation.”

“The CFTC will use all available enforcement tools to aggressively pursue fraud and manipulation regardless of the technology that is utilized,” Acting Director of Enforcement Gretchen Lowe said. “The CEA prohibits deception and swap manipulation, whether on a registered swap execution facility or on a decentralized blockchain-based trading platform.”

The complaint alleges that on Oct. 11, 2022, Eisenberg unlawfully misappropriated over $110 million in digital assets from Mango Markets, a purported decentralized digital asset exchange, through “oracle manipulation.” To do this, Eisenberg 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 artificially 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, the CFTC said.

As a result, the price of MNGO jumped 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 illicit profits by using the artificially inflated value of his swaps as collateral to withdraw over $110 million in digital assets from Mango Markets. In doing so, he drained the platform of most of the assets that had been deposited by other users.

Subsequently, Eisenberg agreed to return 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 alleges.

As part of this action, the CFTC is seeking 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.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York charged Eisenberg with commodities fraud and commodities manipulation. The criminal case was filed in the U.S. District Court for the Southern District of New York.