Tron’s Justin Sun is discovering he can’t fib his way out of a legal jam, while Mango Markets exploiter Avraham Eisenberg has learned that not only can they arrest you, they can convict you.
On April 18, the U.S. Securities and Exchange Commission (SEC) filed an amended complaint in the civil suit it filed last year against Sun, Tron, Sun’s BitTorrent network (since rebranded as Rainberry), and some social media influencers. Sun was accused of the unregistered offer and sale of ‘crypto asset securities’ and illegal wash trading of the TRX and BTT tokens, while the influencers were accused of helping him promote his illegal scheme.
Last month, Tron’s legal team filed a motion to dismiss the suit based on their claim that the SEC had no jurisdiction over Sun, “a foreign national residing abroad.” The motion further argued that the SEC had failed to prove that Sun exercised control over the Tron and BitTorrent networks.
The SEC’s reply rejects these arguments, noting that Sun “spent more than 80 days in the United States in 2017, more than 120 days in the United States in 2018, and approximately 180 days in the United States in 2019.” Rainberry even rented an apartment where Sun bunked during his 2019 stateside visits.
Sun stopped visiting U.S. shores when COVID halted most international travel, but he had other reasons for keeping his distance. In March 2022, The Verge reported that the Department of Justice (DOJ) had opened a criminal probe into whether Sun had committed “wire fraud, conspiracy or intent to commit wire fraud, swindling, money laundering, spending the spoils of a criminal enterprise, failure to register a security and lying about it, aiding and abetting a crime, and conspiracy to defraud the United States.”
As for the question of Sun’s control over his various money-making projects, the SEC notes that “at all relevant times, Sun owned, controlled, and dominated the actions and dealings of the Tron Foundation, the BitTorrent Foundation, and Rainberry. As such, those entities were Sun’s alter egos.”
The SEC goes on to say that Sun “blurred the distinctions among the Tron Foundation, the BitTorrent Foundation, and Rainberry.” During a public appearance in San Francisco, Sun “promoted the Tron ecosystem, TRX, and BTT, while simultaneously displaying the Tron logo, the Tron name, and the BitTorrent name.”
The SEC concludes that “a reasonable investor considering whether to purchase or sell TRX or BTT would see Sun as the face of the Tron ecosystem, TRX, and BTT, and little, if any, meaningful distinction among the Tron Foundation, the BitTorrent Foundation, and Rainberry.”
While Sun is outwardly displaying his usual nonchalance, not all appears well in his ecosystem. His TUSD stablecoin’s market cap has fallen from its October 2023 peak of nearly $4 billion to around $500 million. The decline accelerated sharply in mid-March, shedding 50% of its cap in a single week after the Binance exchange disabled many TUSD trading pairs.
Then there’s whatever the hell this is…
Yes, we are gonna arrest you
Sun may have received an unwelcome glimpse into his future on April 18 when a New York federal jury delivered a unanimous guilty verdict against Avraham ‘Avi’ Eisenberg, the self-confessed ‘shitposter’ behind the $110 million exploit of the decentralized finance
platform Mango Markets in October 2022.
Eisenberg was arrested in Puerto Rico in December 2022 and charged with commodities fraud, commodities market manipulation, and wire fraud. The DOJ’s charges were followed by civil complaints filed by both the SEC and the Commodity Futures Trading Commission
(CFTC).
Eisenberg’s scheme involved massive perpetual futures trades on Mango Markets with himself on both ends of the equation, then making large purchases of the thinly traded MNGO token. As a result, MNGO pumped 10x in value, allowing Eisenberg to use his artificially inflated collateral to borrow and withdraw a variety of other tokens worth a total of $110 million.
Realizing that his tracks would be easy to trace, Eisenberg contacted the decentralized autonomous organization behind Mango Market, offering to return $67 million of the money he ‘borrowed’ in exchange for them (a) letting him keep the remainder of his ill-gotten gains, and (b) declining to press charges.
Eisenberg’s trial defense centered around the notion that he hadn’t defrauded anyone; he’d merely embarked on a “successful and legal trading strategy.” Before he was arrested, Eisenberg was publicly arguing that the fault lay with flaws in Mango Markets’ smart contracts and the fact that “the development team did not fully anticipate all the consequences.”
Prosecutors pushed back on Eisenberg’s ‘nothing to see here’ defense, noting that he’d fled to Israel shortly after digital sleuths confirmed his involvement in the exploit. Eisenberg’s computer history showed searches for Israel’s extradition policy and info on “criminal and regulatory enforcement of market manipulation.”
Moreover, just months before he targeted Mango Markets, Eisenberg filed a civil lawsuit in federal court against Sasha Ivanov, founder of the Waves network. Eisenberg believed that Ivanov and others had conspired to manipulate the price of the WAVES token (in much the same way that Eisenberg manipulated Mango Markets), resulting in Eisenberg taking a financial hit.
All of which, prosecutors argued, showed that Eisenberg knew that what he’d done was not only wrong but illegal.
Eisenberg’s arrest followed an infamous tweet in which he replied to someone who told him to stop publicly bragging about his criminal activities with the now legendary retort: ‘What are you gonna do, arrest me?’
The trial lasted 10 days, but it took the jury only one rotation of the earth to return their unanimous guilty verdict. Assuming the judge allows him to serve out his individual convictions concurrently, Eisenberg faces up to 20 years in prison when he’s sentenced on July 29.
U.S. Attorney for the Southern District of New York Damian Williams hailed the favorable result of his office’s “ground-breaking” prosecution of “the first-ever cryptocurrency market manipulation case.” Williams warned that other “would-be financial criminals should think twice before daring to engage in illicit conduct on our watch.”
The verdict is another blow to the misguided ‘code is law’ mantra so beloved by DeFi proponents. It also suggests that the SEC’s recent warning that it is preparing an enforcement action against Uniswap Labs may be on firmer ground than many DeFi bros originally thought.
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