Avraham “Avi” Eisenberg, a notorious crypto trader and self-described “applied game theorist” faces one more legal headache as Mango Labs takes the case to court. The company behind the DeFi protocol that Eisenberg exploited for millions in October 2022 demands a return of $47 million he allegedly still holds plus interest starting from the day of the attack.
On October 11, Eisenberg sold a large amount of perpetual futures for a low-liquid Mango token (MNGO) and then used his second account on Mango Markets to purchase those perpetuals from himself, artificially inflating the value of the asset. According to court records, he was able to push the price by 1,300% and cashed out, racking $114 million from what he described as “a highly profitable trading strategy” that was carried out with “legal open market actions, using the protocol as designed.”
“As we allege, Eisenberg engaged in a manipulative and deceptive scheme to artificially inflate the price of the MNGO token, which was purchased and sold as a crypto asset security, in order to borrow and then withdraw nearly all available assets from Mango Markets, which left the platform at a deficit when the security price returned to its pre-manipulation level,” David Hirsch, SEC’s Chief of the Crypto Assets and Cyber Unit, summarized in a press release.
The attack crashed MNGO price to under two cents, effectively draining all liquidity from the platform. In the days following the exploit, Eisenberg contacted Mango DAO to negotiate the terms of a settlement.
Under the proposal that was put to DAO members to vote on, Eisenberg would return $67 million to Mango Markets and keep the rest as a bug bounty. What’s more, Mango DAO agreed not to pursue any criminal investigations or freezing of funds once the tokens are sent back. However, not everyone in the community was happy with the terms of the settlement.
“As several others have said, we should give him less of a bounty. He's dox'd and will be arrested - don't give him half! 25M total is more than enough,” one DAO member commented on the proposal.
“Mango team is f**king brain dead and should be criminally investigated. They left this exploit open and are now paying out 40-50m bug bounty to a doxxed exploiter. Worst negotiation I have ever seen,” another member opined bitterly.
But now when Eisenberg is arrested and subject to criminal charges, Mango Labs seeks to walk away from the deal. In a lawsuit filed Wednesday, the company alleges that DAO was essentially forced to accept the proposal since its $10 million insurance fund for such attacks was insufficient to cover all losses.
“He [Eisenberg] forced Mango DAO to enter into an unenforceable settlement agreement—under duress—purporting to release depositors’ claims against him and precluding them from pursuing a criminal investigation,” the filing reads.
“Since the attack, Defendant has continued to plot to attack Mango Markets further, in public, and has used the converted funds to attack other cryptocurrency protocols as well.”
Indeed, on November 22 Eisenberg attempted to launch a short-selling attack on the decentralized lending platform Aave, but suffered a short squeeze and had to back off. To prevent such attacks in the future, Aave voted to freeze 17 low-liquidity pools.
In a pinned tweet dated 24 January 2022, Eisenberg invited followers to subscribe to his Substack newsletter, where he shares how his team “makes millions in crypto risk-free.”
“Guess there was some risk after all,” one user noted.