The U.S. Securities and Exchange Commission on Friday charged decentralized finance (DeFi) trader Avraham Eisenberg over his draining of $116 million from Solana-based decentralized exchange Mango Markets. But this action could have a wider effect.
The SEC’s charges rest on the agency’s assertion that MNGO, Mango Markets’ governance token, is a security, much like its arguments in previous actions that have put the crypto industry on its guard.
Eisenberg, 27, already faced criminal commodities fraud charges for his admitted role in orchestrating the “highly profitable trading strategy” against Mango Markets in October.
Apart from his actions, the SEC complaint detailed the Howey Test standards the agency used to call MNGO a security, much as the agency has done in previous enforcement actions – most notably the former Coinbase (COIN) manager's insider-trading case where the SEC declared nine tokens as unregistered securities without directly accusing the token issuers or Coinbase of anything. As in that case, the Mango action doesn't go after Mango Markets, the exchange.
A Mango co-founder didn't immediately respond to a request for comment.
The SEC's backdoor listings of which tokens it considers securities have sent shudders through the law firms that represent crypto clients.
In this case, the agency said that despite MNGO’s labeling as a “governance token,” it “was purchased and sold as a crypto asset security.” Its holders had expectations of profit and “entered into a common enterprise” – two of the factors the SEC looks for in identifying investment contracts that fall under securities laws. And holders of MNGO can use their tokens to vote in decisions governing Mango Markets’ operations, the agency said.
SEC Chairman Gary Gensler and his enforcement officials have recently been amplifying their warnings that the regulator is losing patience with unregistered securities and the unregistered exchanges where they trade.
The Commodity Futures Trading Commission already hit Eisenberg last week with accusations he’d manipulated the market.
UPDATE (Jan. 20, 2023, 20:28 UTC): Adds detail on SEC accusations.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.
Learn more about Consensus 2023, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.