Man arrested

How do you like those mangoes? Avraham Eisenberg arrested and charged with fraud, but his legal headaches are only getting started

The murky world of crypto criminality appears poised to anoint its newest high-profile jailbird, with the news that Avraham ‘Avi’ Eisenberg has been the latest member of the disparate crypto crime cartel to be ensnared by the long arm of U.S. law enforcement. The self-described “applied game theorist” and cryptocurrency trader was apprehended while on the lam in Puerto Rico on Monday evening, with a now unsealed complaint revealing that Eisenberg has been charged by the U.S. Attorney’s Office in Manhattan with commodities fraud and commodities manipulation in relation to the well-publicized Mango Markets exploit in October, that saw the Solana-powered “decentralized” digital asset exchange run by Mango DAO drained of more than $110 million.

Presently detained in Puerto Rico—a U.S. territory—Eisenberg will be processed and then transferred to stand trial in New York, where if found guilty, he is staring down the barrel of a lengthy prison sentence, a hefty financial penalty, and the prospect of restitution to the victims of his scheme. But Eisenberg’s situation may be set to go from bad to worse, as while the charges related to Mango Markets are the defendant’s first official brush with law enforcement, a deep dive by CoinGeek into his past reveals a history of deceptive and dishonest behavior in the murky world of “cryptocurrencies”, including several other successful exploits which appear to have netted the alleged fraudster millions of dollars.

Markets, mangoes, and the anatomy of a fraud

The complaint levied against Eisenberg, which was investigated by Special Agent Brandon Racz of the FBI together with local law enforcement, charges him with two crimes: commodities fraud and commodities manipulation. In his sworn affidavit before the court, Special Agent Racz summarised the complaint as follows:

“Eisenberg engaged in a scheme involving the intentional and artificial manipulation of the price of perpetual futures contracts on a cryptocurrency exchange called Mango Markets, and other manipulative and deceptive devices and contrivances.”

To understand how Eisenberg perpetuated the fraud on Mango Markets, one must first be familiar with the basics of perpetual futures contracts—financial derivatives used by traders to speculate on the future price of a digital asset—either up or down—without actually buying, selling or holding the underlying asset.

Perpetual futures contracts work much like traditional futures contracts, except that they do not have a predetermined expiration date. Instead, they are designed to be held indefinitely, or “perpetually,” until the trader decides to close their position. The value of the contract is determined based on the difference between the contract price and the current market price of the asset, making them a popular choice amongst degenerate “cryptocurrency” gamblers. Because they are settled in cash rather than with the underlying asset, they represent a particularly attractive tool for betting on the price of digital assets with low liquidity, where settlement with the asset itself can prove difficult or expensive—much like Mango Markets’ native MNGO token.

Avraham Eisenberg

To initiate his scheme, Eisenberg—operating two different accounts on Mango Markets—funded each of the accounts with approximately $5 million in “stablecoin” USDC. These funds were used to create a perpetual futures contract, which was sold from one account to the other and represented approximately 488 million MNGO tokens, or close to 50% of the total circulating supply.

In parallel, Eisenberg began purchasing large swathes of MNGO from several different digital asset exchanges—both directly and through the use of the Jupiter aggregator—acquiring a total of more than 20 million MNGO tokens and artificially inflating the price of MNGO from 3.89c to as high as 91c on some exchanges—a 2,400% price rise.

Crucially, two of the exchanges on which Eisenberg manipulated the price of MNGO were used as Oracles by Mango Markets to set the price of perpetual futures contracts, sending the value of the contracts in one account that Eisenberg sold to himself skyrocketing—but incredibly, not sufficiently high to trigger a liquidation in the other account and close the contract.

The massively inflated value of the perpetual futures contract was then used by Eisenberg as collateral for loans of various “cryptocurrencies” and “stablecoins,” effectively draining all liquidity on Mango Markets, which he then promptly withdrew to privately held wallets. Once the withdrawals were completed, Eisenberg then began selling the massive MNGO stake he had amassed, cratering the price of MNGO to below 2c and prompting a liquidation of his account which had taken out the loans—only there was nothing left to liquidate—leaving the Mango Markets platform and the Mango DAO which operates it high and dry, while Eisenberg sat atop a misappropriated fortune valued at more than $110 million.

The Art of the Steal

In the days following the Mango exploit, Eisenberg—at this stage still operating under the shield of anonymity, initiated contact with members of the Mango DAO to voluntarily negotiate the terms of a settlement.

These negotiations resulted in a proposal that was put to members of the Mango DAO to vote on, the terms of which dictated:

– Eisenberg would make a $10 million USDC payment before the commencement of voting as a show of good faith.

– Eisenberg would return approximately $67 million worth of the digital assets swindled, half within 12 hours of the proposal opening and half within 12 hours of the conclusion of the vote, which would be used to make depositors on Mango Markets whole.

– Eisenberg would retain the remainder of the digital assets taken, amounting to approximately $47 million.

– Members of the Mango DAO would agree not to pursue any criminal investigations against Eisenberg nor civil sanctions or freezing orders on the funds he retained.

The proposal was promptly voted on and passed by members of the Mango DAO, with Eisenberg proving good to his word and returning the funds as promised.

In the process, of course, Eisenberg collected what he would later characterize as a “white hat” bug bounty—which, if bearing even a semblance of truth, would have proved the largest known bug bounty in history, smashing the record $10 million paid by Wormhole earlier this year.

So, with the funds returned, users able to be made whole and an agreement not to pursue criminal charges against the now very-wealthy Eisenberg, all is well that ends well, right?

Case closed.

But how then, barely two months after the attack is Eisenberg now behind bars, facing the prospect of 10 years in prison on felony fraud and market manipulation charges?

The fruitless peril of pride

The swift turnaround time between the Mango exploit and Eisenberg ending up in cuffs can be attributed in large part, if not entirely, to the now defendant’s hubris.

Evidently not content with the $47 million financial windfall garnered by his criminal activities, Eisenberg turned to Twitter to boast of his exploits, posting from an account (@avi_eisen) bearing his legal name and featuring a profile picture of, you guessed it, himself—facts not lost on the FBI.

Avraham Eisenberg

“I was involved with a team that operated a highly profitable trading strategy last week,” Eisenberg wrote.

“I believe all of our actions were legal open market actions, using the protocol as designed, even if the development team did not fully anticipate all the consequences of setting parameters the way they are. Unfortunately, the exchange this took place on, Mango Markets, became insolvent as a result, with the insurance fund being insufficient to cover all liquidations. This led to other users being unable to access their funds,” he wrote.

“To remedy the situation, I helped negotiate a settlement agreement with the insurance fund with the goal of making all users whole as soon as possible as well as recapitalizing the exchange. As a result of this agreement, once the Mango team finishes processing, all users will be able to access their deposits in full with no loss of funds.”

Truly the hero Mango needed but didn’t deserve.

But despite the bluster and bravado from behind his keyboard, Eisenberg’s immediate actions following the attack paint something of a different picture. As alleged by Special Agent Racz in his affidavit, “on or about October 12, 2022 – the day after the Market Manipulation Scheme – Avraham Eisenberg, the defendant, flew from the United States to Israel. Based on the timing of the flight, the travel appears to have been an effort to avoid apprehension by law enforcement in the immediate aftermath of the Market Manipulation Scheme.”

Special Agent Racz

He who shouts loudest…

But what a difference a few days can make.

When carrying out his attack, Eisenberg utilized several different exchanges, one of which – upon realizing what had happened—froze his account and the remaining funds contained within it. Evidently feeling confident holed up halfway around the world and with the agreement from the Mango DAO not to pursue criminal charges against him in his back pocket, Eisenberg contacted the exchange claiming to be the rightful owner of the digital assets contained within it and demanding that the funds be released. When that request was declined, Eisenberg initiated legal action against the exchange—once again in his own name—seeking the return of “his” digital assets.


Code and the illusion of legal authority

Eisenberg’s case is now before the United States District Court for the Southern District of New York (SDNY)—the same judicial apparatus that tried notorious financial fraudster Bernie Madoff, and which will decide the future of disgraced FTX CEO Sam Bankman-Fried.

Despite not being a resident of New York, nor carrying out his alleged crimes from New York, Eisenberg brought himself within the ambit of the SDNY by manipulating an exchange that the oracles relied on which has an office in Manhattan—an office which, during the course of the Mango exploit, received and transmitted both wires and data. That exchange also happens to be the same exchange that he was pursuing legal action against and was fully KYCed with.

Eisenberg’s impending trial will once again put to the test—in a very public fashion—the oft-repeated assertion in decentralized finance (DeFi) and “cryptocurrency” circles that “code is law.” But to reduce law to computer code is both fallacious and incorrect—a subject explored in great detail by several different authors on this publication, but perhaps no more eloquently explained than by Dr. Craig S. Wright, the creator of Bitcoin:

“The code is law movement is a pernicious attack on freedom. There is no definitive means to assess truth through a computer program. The strength of law comes in its flexibility—the ability of judges and juries to weigh evidence and find a balance based on proof,” he wrote in a 2019 blog post.

“Such a movement, one of code as law, is all Bitcoin is in opposition to… It is something that childish hackers and those aligned to states who oppose freedom seek to promote. It is not simply leaving choice to a mere algorithm, but in taking away the power from the existing system.”

“[T]he the aim is very clear: to undermine the nature of justice.”

Unfortunately, at least for Eisenberg, he appears set to be in store to learn the hard way that law, not code, is law. And there can be perhaps no venue better equipped to dish out this tough lesson.

The mango doesn’t fall far from the tree

But the pending charges presently before Eisenberg may only spell the beginning of his legal troubles. The complaints raised against him in the affidavit of Special Agent Racz may yet give rise to further charges in the current case—namely the use of an unknown Ukrainian woman’s identification to KYC an exchange account used in the Mango exploit, in addition to the references made to activities that would surely constitute wire fraud.

Avraham Eisenberg

But you can be sure that while now safely encased in U.S. custody, authorities will be casting a wide net into Eisenberg’s past—and what they will find appears to be nothing short of criminal.

Eisenberg first appeared on the radar of the digital asset community as the lead developer then CTO of FortressDAO—a clone of the Olympus DAO project built to be “a community-owned, decentralized and censorship-resistant reserve currency” forked to the Avalanche blockchain with the native FORT token. While at the helm of the organization, which once boasted more than 6,000 investors, Eisenberg deceptively pushed through the creation of FortressUSD (FUSD) with $75,000 of FortressDAO funds—a U.S. dollar-pegged stablecoin project purported to be developed and owned by the community, but which was in reality later revealed to be entirely controlled by himself.

With the FortressDAO community still unaware of this, Eisenberg led a conversion of the DAO’s reserves—eventually to the tune of $14 million—to his self-controlled “stablecoin.” Therein, he used a loophole in the smart contract to manipulate the price of FORT and mint new tokens for himself, diluting other investors until he gained full effective control of the DAO and its funds. Eisenberg then proceeded to offer remaining holders desperate to get out a take-it-or-leave-it offer, paying out approximately $1 million of the $14 million treasury, netting the remainder for himself (a figure which almost assuredly made up the bulk of the funds used later that year to carry out the Mango exploit).

The full compilation of complaints raised against Eisenberg by whistle-blowers within the FortressDAO community is available online. While Eisenberg has yet to be formally charged in this case, sources indicate that the matter is the subject of an active investigation and the Mango exploit may prove the catalyst for escalating the complaints into criminal actions down the line.

But as we know—and should come to expect by now—the defining characteristic of Eisenberg is unfettered greed. Seemingly unsatisfied with the eight figures of ill-gotten gains from FortressDAO and the Mango exploit, Eisenberg again set his sights on ripping off the “cryptocurrency” community with a pair of schemes in the past two months.

The first was designed to ensnare traders utilizing trading bots. Eisenberg created a digital asset, Mango Inu, which he wash traded and manipulated before rug pulling—netting him “only” 100,000 in profit in under 24 hours.

The second, was an attempt to exploit the popular AAVE lending protocol and Curve Finance’s CRV token. Eisenberg first opened an enormous $63 million short position on CRV using $40 million USDC as collateral on AAVE, before attempting to depreciate the price by flooding the market with the borrowed tokens—a scheme designed not only to profit directly from the declining value of CRV, but to trigger a liquidation of Curve Finance founder Michael Egorov’s known 9 figure position on the protocol—a plan which he signaled on Twitter some weeks earlier. On this occasion, however, DeFi traders and CRV whales alike battled to defend the token—resulting in intraday price swings in excess of 75% and causing Eisenberg’s account to be liquidated, in the process incurring millions in losses.

The above covers only some of the schemes known to have been run by Eisenberg this year alone, with further details of past scams and exploits detailed on his blog. But, at least now, it appears a foregone conclusion that Eisenberg will receive his second comeuppance in as many months—this time at the hands of the justice system.

To quote Eisenberg himself, “Imagine being scared of losing capital.”

I’d wager that he won’t have to imagine for much longer about losing far more than just capital.

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