Damian Williams, the United States Attorney for the Southern District of New York, Kenneth A. Polite, Jr., the Assistant Attorney General of the Justice Department’s Criminal Division, and Michael J. Driscoll, the Assistant Director in Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced that AVRAHAM EISENBERG will make his initial appearance in the Southern District of New York later today in connection with an Indictment charging him with commodities fraud, commodities market manipulation, and wire fraud in connection with EISENBERG’s manipulation of the Mango Markets decentralized cryptocurrency exchange. As alleged in the Indictment filed on January 9, 2023, EISENBERG engaged in a scheme to fraudulently obtain approximately $110 million worth of cryptocurrency from the cryptocurrency exchange Mango Markets and its customers and achieved this objective by artificially manipulating the price of certain perpetual futures contracts. EISENBERG was previously arrested on December 26, 2022, in San Juan, Puerto Rico, pursuant to a criminal Complaint. EISENBERG will appear in federal court in Manhattan today and will be presented on the charges before United States Magistrate Judge Jennifer E. Willis. The case has been assigned to United States District Judge Richard Berman.
U.S. Attorney Damian Williams said: “As alleged, Avraham Eisenberg manipulated the Mango Markets cryptocurrency exchange in order to obtain over $100 million in illicit profits for himself. Through his scheme, Eisenberg left others holding the bag. Market manipulation is illegal in all of its forms, and this Office is committed to prosecuting such schemes wherever they occur – including in the cryptocurrency markets.”
Assistant Attorney General Kenneth A. Polite, Jr. said: “Exploiting decentralized finance platforms is the new frontier of old school financial crimes in which criminals abuse emerging technologies for their own personal gain. With this prosecution, the Criminal Division is sending the message that no matter the mechanism used to commit market manipulation and fraud, we will work to hold those responsible to account.”
FBI Assistant Director Michael J. Driscoll said: “The defendant is alleged to have executed a scheme through which he fraudulently acquired over $100 million worth of cryptocurrency. The FBI is dedicated to safeguarding the integrity of all financial markets and will ensure any individual willing to exploit one be held responsible in the criminal justice system.”
As alleged in the Indictment and the Complaint:
Background on Mango Markets
Mango Markets is a decentralized cryptocurrency exchange that allows investors to, among other things, purchase and borrow cryptocurrencies and cryptocurrency-related financial products. Mango Markets is run by the Mango Decentralized Autonomous Organization (the “Mango DAO”). The Mango DAO has its own crypto token called MNGO, which investors could buy and sell. Holders of the MNGO token are allowed to vote on changes to Mango Markets and issues related to the governance of the Mango DAO.
Investors on Mango Markets can, among other things, buy and sell perpetual futures contracts (“Perpetuals”). When an investor buys or sells a Perpetual for a particular cryptocurrency, the investor is not buying or selling that cryptocurrency but is, instead, buying or selling exposure to future movements in the value of that cryptocurrency relative to another cryptocurrency. An investor who buys a Perpetual based on the relative value of the stablecoin USDC and MNGO (a “MNGO Perpetual,” for short) at a price of 0.02 USDC/MNGO is “long” on MNGO, and the value of that position will rise if the value of MNGO rises above 0.02 USDC/MNGO. Conversely, the investor who sold that Perpetual is “short” on MNGO, and the value of that position will rise if the value of MNGO falls relative to USDC. Either party to a Perpetual can settle the Perpetual at any time and realize their gain or loss.
To determine the settlement price of Perpetuals, Mango Markets uses an “oracle,” which is a computer program that calculates the relative value of two cryptocurrencies by looking at the exchange rate of those cryptocurrencies on various cryptocurrency exchanges (the “Oracle”). When the Oracle price changes for a particular cryptocurrency pairing, the settlement price of Perpetuals based on that cryptocurrency pairing also changes on Mango Markets. Each party to a Perpetual on Mango Markets also regularly makes or receives payments known as “funding” payments. Funding payments are calculated based on the midprice of bids and asks for that Perpetual compared to the Oracle price for that Perpetual. Funding payments are designed to ensure the purchase price for Perpetuals stays close to settlement prices.
Investors can also engage in “spot” trades on Mango Markets. In a spot trade, an investor exchanges one cryptocurrency for another, at whatever the prevailing exchange rate between those two cryptocurrencies is at the time of the transaction.
Mango Markets also allows investors to use their deposits and positions as collateral for borrowing and withdrawing cryptocurrency from the Mango Markets exchange. To borrow through Mango Markets, an investor accesses the Mango Markets website and clicks a button labeled “borrow” that allows the investor to borrow cryptocurrency. The investor can then withdraw the borrowed cryptocurrency by clicking another button labeled “withdraw.” The borrowed cryptocurrency comes from cryptocurrency that other investors have deposited in Mango Markets accounts. The amount that an investor on Mango Markets can withdraw is determined by a formula that looks at, among other things, the value of the cryptocurrency deposited in the investor’s account, the value of the investor’s positions on Mango Markets, and the amount of cryptocurrency that the investor has already borrowed through Mango Markets. Mango Markets uses a formula to track the relationship between these assets and liabilities, which Mango Markets labels the “health” of the account. If the “health” of a Mango Markets account falls below a certain threshold, the investor’s positions on Mango Markets can be liquidated
EISENBERG’s Market Manipulation Scheme
EISENBERG engaged in a scheme to steal approximately $110 million by artificially manipulating the price of MNGO Perpetuals on Mango Markets. To achieve this objective, EISENBERG took a number of steps. First, EISENBERG used an account that he controlled on Mango Markets to sell a large amount of MNGO Perpetuals and used a separate account on Mango Markets to purchase those same MNGO Perpetuals. One account that EISENBERG controlled held a “long” position, the value of which would rise if the value of MNGO relative to USDC rose above the threshold of 0.0382 USDC/MNGO (the “Long MNGO Perpetual Position”). The second account that EISENBERG controlled held a “short” position, the value of which would rise if the value of MNGO relative to USDC fell below 0.0382 USDC/MNGO (the “Short MNGO Perpetual Position”). EISENBERG was the owner of both positions and had sold to himself, from himself, the MNGO Perpetuals.
Second, EISENBERG made a series of large purchases of MNGO using the stablecoins USDC and USDT on multiple cryptocurrency exchanges with the objective of artificially increasing the price of MNGO relative to USDC and, in turn, the price of MNGO Perpetuals on Mango Markets. EISENBERG’s manipulative trading caused the price of MNGO Perpetuals on Mango Markets to rise approximately 1300% in a period of approximately 20 minutes.
Finally, as the price of MNGO Perpetuals on Mango Markets rose due to the manipulative purchasing by EISENBERG, the apparent value of the MNGO Perpetuals that EISENBERG had purchased for himself also rose. Because Mango Markets allows investors to borrow and withdraw cryptocurrency based on the value of their assets on the platform, the artificial increase in the value of the MNGO Perpetuals EISENBERG had purchased from himself allowed him to borrow, and then withdraw, approximately $110 million worth of various cryptocurrencies from Mango Markets, which came from deposits of other investors in the Mango Markets exchange. EISENBERG withdrew nearly all then-available funds from Mango Markets. When Eisenberg borrowed and withdrew this cryptocurrency, he had no intention of repaying the borrowed funds but rather intended to steal those funds.
After EISENBERG stopped purchasing MNGO with USDC in connection with his fraudulent scheme, the price of MNGO Perpetuals on Mango Markets – which was no longer being artificially propped up by EISENBERG – collapsed.
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AVRAHAM EISENBERG, 27, of San Juan, Puerto Rico, is charged with one count of commodities fraud, which carries a maximum sentence of 10 years in prison; one count of commodities manipulation, which carries a maximum sentence of 10 years in prison; and one count of wire fraud, which carries a maximum sentence of 20 years in prison.
The statutory maximum sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge.
Mr. Williams praised the investigative work of the FBI and further thanked the Department of Homeland Security’s Homeland Security Investigations and the Internal Revenue Service-Criminal Investigation for their assistance with the investigation. Mr. Williams further thanked the Commodity Futures Trading Commission and the Securities and Exchange Commission, both of which have initiated civil proceedings against EISENBERG, for their cooperation and assistance in the investigation.
This case is being handled by Assistant U.S. Attorneys Thomas Burnett and Noah Solowiejczyk of the Office’s Securities and Commodities Fraud Task Force and Jessica Peck of the National Cryptocurrency Enforcement Team (NCET).
The NCET was created by the Criminal Division to combat the growing illicit use of cryptocurrencies and digital assets. Under the supervision of the Criminal Division, the NCET conducts and supports investigations into individuals and entities that are enabling the use of digital assets to commit and facilitate a variety of crimes, with a particular focus on virtual currency exchanges, mixing and tumbling services, and infrastructure providers.
The allegations in the Indictment and the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
 As the introductory phrase signifies, the entirety of the text of the Indictment and the Complaint, and the description of the Indictment and the Complaint set forth herein, constitute only allegations, and every fact described should be treated as an allegation.
Originally published at https://www.fbi.gov/contact-us/field-offices/newyork/news/alleged-perpetrator-of-100-million-crypto-market-manipulation-scheme-to-make-initial-appearance-in-the-southern-district-of-new-york
originally published at HUMAN RIGHTS - USA DAILY NEWS 24