Securities Regulation Daily Wrap Up, BLOCKCHAIN—S.D.N.Y.: Mango Markets borrower’s commodities and wire fraud convictions overturned, (May 29, 2025)

By Mark S. Nelson, J.D.

The scheme involved a complex set of contractual arrangements that depended on price quotes from an oracle.

A judge on the U.S. District Court for the Southern District of New York overturned the commodities and wire fraud convictions of Avraham Eisenberg, who had been convicted of manipulating Mango Market’s MNGO token and MNGO Perpetuals in an effort to obtain a higher than available amount of collateralized loans from Mango Markets. The district court’s post-trial opinion emphasized technical issues regarding venue and the complex arrangements created via MNGO Perpetuals, a type of derivative contract. The net effect of the court’s several findings is that the commodities fraud and commodities manipulation convictions were vacated, and the court entered judgment of acquittal regarding the wire fraud count (U.S. v. Eisenberg, No. 23-cr-00010 (S.D.N.Y. May 23, 2025)).

Alleged scheme. Eisenberg was charged with commodities fraud, commodities manipulation, and wire fraud for his participation in a scheme that resulted in the withdrawal of $100 million in MNGO from Mango Markets. According to prosecutors, the scheme unfolded in several steps that involved Eisenberg’s trading of MNGO tokens (a cryptocurrency), MNGO Perpetuals (derivative contracts), and the use of both MNGO tokens and MNGO Perpetuals as potential collateral for loans within the Mango Markets ecosystem.

First, Eisenberg made a large deposit of USDC ($5 million) into two wallets that he used to hold long and short positions in MNGO Perpetuals, respectively. Eisenberg then bought MNGO from exchanges whose transactions informed the pricing of MNGO on an oracle (an “oracle” is a blockchain tool that aggregates trading data on a token in an attempt to fix the token’s fair market value). As the price of MNGO quoted by the oracle increased, Eisenberg borrowed against the wallet that held his long position in MNGO, which had also increased after his purchases of MNGO.

Second, Eisenberg essentially reversed this process to leverage his short position to increase his borrowing by selling MNGO, thus resulting in a drop in the price of MNGO quoted on the oracle and, ultimately, resulting in an increase in the value contained in the wallet that held his short position in MNGO.

Venue and the CEA’s scope. Eisenberg had asked the court to either grant judgment of acquittal or to vacate certain counts and other findings made by the trial court. The first set of issues the court addressed focused on venue and the scope of the Commodity Exchange Act (CEA).

The government had predicated venue in New York on the basis of the presence in state of a vendor for one of the exchanges that fed data to the pricing oracle and on the presence of one New York resident who unsuccessfully tried to trade MNGO after seeing a false price signal (i.e., unexpected pricing volatility). In both instances, the court said the government’s argument for venue being in New York was insufficient in large part because it did not show the essential conduct of the offenses charged.

Other issues regarding venue did not require vacatur and a new trial. Those issues concerned venue as related by the government in its summation at trial and a related jury instruction on venue.

With respect to the CEA’s scope, Eisenberg had argued that the court should go beyond vacatur and acquit him on the two commodities counts, primarily because at trial both Eisenberg and the government had agreed that MNGO tokens were securities outside the scope of the CEA. The government countered, however, that MNGO Perpetuals were mixed swaps that do fall within the ambit of the CEA.

For purposes of a series of rulings on the sufficiency of the evidence, the court concluded that MGNO Perpetuals are swaps. Eisenberg had argued that they were not swaps because he traded only with himself and, thus, there was no transfer of risk. The court, however, reasoned that Eisenberg’s being on both sides of his trades did not prevent application of the CEA and, in any event, a carve out for such trading would conflict with the CEA’s wash trading provisions.

Having found MNGO Perpetuals to be swaps, the court next found the evidence was sufficient that MNGO Perpetuals also were mixed swaps under the CEA. Even though MNGO tokens may be securities and, by extension, potentially security-based swaps, the CEA contains an exception that brings mixed swaps into its statutory framework. Here, the government had argued that MNGO Perpetuals had a funding rate (a “rate” under the CEA) and that the use by Eisenberg of USDC (a “currency” per the CEA) brought MNGO Perpetuals within the scope of the CEA. Eisenberg had disputed both of the government’s assertions about MNGO Perpetuals’ constituent parts.

The court also declined to exercise lenity regarding the commodities counts. According to the court, Eisenberg failed to show how applying the CEA’s statutory framework would give rise to a serious interpretive ambiguity justifying the exercise of lenity.

Moreover, the court declined to grant vacatur or new trial regarding the jury charge explaining the law of mixed swaps. The court noted that the trial judge had declined Eisenberg’s proposed jury instruction that MNGO tokens are securities because that might confuse the jury with respect to MNGO Perpetuals and their possible status as mixed swaps. The court also found that Eisenberg failed to allege any prejudice arising from the exclusion of his proposed jury instruction.

Commodities manipulation count. For purposes of determining whether the evidence was sufficient that Eisenberg manipulated the price of any swap, the court emphasized the structure of MNGO Perpetuals, which had both reference and settlement prices. The reference price was determined by a bid-ask process in which traders are matched to each other in order to form a contract; the settlement price arises from the use of the pricing oracle to calculate the difference between the reference price of the contract and the spot price of MNGO tokens.

Eisenberg asserted that the trial evidence showed he manipulated the settlement price only, not the market price. The court rejected this argument for three reasons. First, CFTC and Second Circuit precedent foreclosed Eisenberg’s argument. Second, a reasonable juror could find that the settlement price functioned like a market price. Third, even assuming Eisenberg’s definition of market price (i.e., order-book mid-price of MNGO Perpetuals) was the standard, a reasonable juror could find that that price was manipulated by Eisenberg.

Once again, the court found no significant statutory ambiguities that would justify lenity. The court also noted that lenity is not invoked every time the government makes a novel claim. After reciting the basic facts of how Eisenberg obtained the $100 million in loans from Mango Markets, the court summarized the lenity issue thus: “That is a conventional tale; what’s novel is the context and the type of instrument at issue in this case. But if that were enough for application of the rule of lenity, the enforcement of the securities and commodities laws in an age of rapid development in technology and financial instruments would be impossible.”

Moreover, the court concluded that the contents for the jury charge and the government’s summation regarding commodities manipulation did not merit a new trial.

Commodities fraud. The court distinguished the commodity fraud requirements from those for wire fraud (see below) because the government could prove that Eisenberg broke the law by either showing a material falsehood or a manipulative device. The jury card indicated that the jurors believed the government on the manipulative device claim but not the material falsehood claim.

The court, after considering Eisenberg’s motion, concluded that Eisenberg had waived any challenge regarding a manipulative device. The court explained that a jury could find that Eisenberg manipulated MNGO to inflate the amount of collateral he had available to obtain loans from Mango Markets such that he was able to obtain higher loan amounts than he otherwise would have been able to obtain. As a result, the court said Eisenberg failed to show that he should be acquitted on the commodities fraud charge.

Wire fraud. The court quickly concluded that the trial evidence showed the existence of an interstate wire. But the court also explained that venue for purposes of wire fraud was absent for the same reasons as the commodities charges—an insufficient connection to New York and the essential conduct charged by the government. The court also found that the evidence on the falsity element of wire fraud was insufficient.

The SEC and the CFTC filed enforcement cases against Eisenberg in the U.S. District Court for the Southern District of New York. Those cases had been stayed pending the outcome of the criminal case.

The case is No. 23-cr-00010.

Judge: Subramanian, A.

Attorneys: Thomas Somerset Burnett, U.S. Attorney's Office, for the U.S. Ashley Martabano (Waymaker LLP) for Avraham Eisenberg a/k/a Sealed Defendant 1.

Companies: Mango Markets

MainStory: TopStory Blockchain CommodityFutures Derivatives Enforcement ExchangesMarketRegulation FraudManipulation GCNNews InvestorEducation RiskManagement Swaps NewYorkNews