DeFi Loophole Found? Mango Markets Case Shows Proving U.S. Crypto Fraud Is Getting Harder

• A US federal judge dismissed key criminal charges against Avraham Eisenberg in the Mango Markets exploit.
• Judge Subramanian cited lack of evidence for false representation due to Mango Markets’ decentralized nature.
• Eisenberg still faces SEC, CFTC civil suits and a prison sentence for unrelated charges despite this win.

In what many are calling a striking turn of events with major implications for DeFi regulation, a U.S. federal judge has dismissed key criminal charges against Avraham Eisenberg. Eisenberg is the individual accused of manipulating the decentralized exchange (DEX) Mango Markets in a controversial $110 million crypto exploit. 

The ruling marks a significant, though not complete, legal win for Eisenberg, who had previously been convicted in a separate trial of commodities fraud and market manipulation related to the same incident. 

Judge Arun Subramanian concluded that the government’s case lacked sufficient evidence to support the convictions. According to the court, the decentralized and permissionless nature of Mango Markets made it difficult to prove that Eisenberg had made any false representations during the alleged exploit.

This case had already grabbed wide attention in both crypto and legal circles due precisely to its far-reaching implications for how DeFi platforms and so-called “code is law” arguments are treated under existing statutes. Thursday’s ruling now throws more questions into the mix about the legal boundaries of code exploitation on decentralized finance platforms. 

Although Eisenberg’s scheme temporarily inflated the price of the MNGO token by over 1,300%, the judge emphasized that the platform’s design and open access nature limited the strength of the government’s argument.

Related: SEC Charges Avraham Eisenberg for Stealing Cryptos Worth $116 M

Judge Cites Lack of Falsity in Decentralized System for Dismissal

The judge emphasized that Mango Markets operated in a decentralized, permissionless fashion, a core tenet of many DeFi protocols. 

Because of this open and code-driven structure, proving the element of active deception or traditional fraud by Eisenberg became a significant challenge for the prosecution on these particular charges. Eisenberg’s defense focused on the fact that he did not make false claims or directly mislead users or systems. Instead, he leveraged vulnerabilities in the platform’s code, exploiting it to his advantage.

Significantly, the judge noted that exploitation alone does not necessarily constitute fraud under current law. This distinction may carry weight in future crypto-related cases, especially those involving decentralized platforms. 

Related: Mango Markets Settles with SEC, MNGO Token Delists

Attempt to Move Case to New York Denied, Weakening Further Prosecution

In another procedural aspect of the case, prosecutors had previously attempted to move the case to New York (where this ruling was made by a New York judge, suggesting the case was already there or this refers to a different specific set of charges/venue issue). 

However, the judge denied this motion due to what were described as weak jurisdictional ties. As a result of these developments, the vacated charges may not be refiled by the government, especially considering what some observers see as shifting enforcement priorities in the U.S. regarding crypto.

Eisenberg Not Scot-Free: Faces SEC, CFTC Civil Suits and Prior Conviction

Despite the courtroom win, Eisenberg’s legal troubles are far from over. He still faces civil litigation from both the Securities and Exchange Commission and the Commodity Futures Trading Commission. These suits could result in financial penalties or trading bans.

Moreover, Eisenberg has already been sentenced to four years in prison for unrelated charges involving child sexual abuse material. Authorities uncovered this evidence during the Mango Markets investigation, leading to a separate guilty plea. Hence, while this latest dismissal lifts a major legal burden, his broader legal and criminal liabilities remain significant.