First US cryptocurrency manipulation conviction

13 views 11:00 pm 0 Comments April 21, 2024

A crypto trader found guilty of using illicit tactics to artificially inflate futures contracts could receive a maximum 20-year sentence.

A landmark verdict was reached in New York last week as a federal jury found Avraham Eisenberg guilty of a complex cryptocurrency manipulation scheme. The case, the first of its kind in the US, involved exploiting vulnerabilities on the decentralised exchange (DEX) Mango Markets to fraudulently obtain USD 110 million’s worth of cryptocurrency. Eisenberg’s manipulative trading tactics targeted perpetual futures contracts on the platform whereby, through a series of undisclosed manoeuvres, he reportedly inflated the price of these contracts artificially. This price manipulation then allowed him to borrow massive amounts of other cryptocurrencies from Mango Markets, effectively leveraging the inflated value of his holdings.

The investigation leading to the conviction involved collaboration between the Federal Bureau of Investigation (FBI), Homeland Security Investigations and Internal Revenue Service (IRS) Criminal Investigation. The National Cryptocurrency Enforcement Team (NCET), created to counter the growing misuse of cryptocurrencies, played a crucial role in the prosecution. This specialised unit focuses on investigating individuals and organisations that exploit digital assets for criminal activity, targeting virtual currency exchanges, money laundering services and infrastructure providers. Moreover, the NCET works on setting strategic priorities in the digital-asset field, identifying areas for further investigation and prosecution, and fostering collaboration between various government agencies and the private sector to tackle cryptocurrency-related crimes.

News of the verdict was heralded by bullish statements from the US authorities. Principal Deputy Assistant Attorney General Nicole Argentieri talked of the importance of holding individuals accountable for manipulating financial markets, traditional or digital. “Manipulative trading puts our financial markets and investors at risk,” she announced, underlining the Department of Justice’s commitment to protecting financial systems. US Attorney Damian Williams for the Southern District of New York echoed Argentieri, dubbing the prosecution “groundbreaking” and a testament to his office’s ability to adapt to evolving financial landscapes. He commended the “career prosecutors” for their expertise in tackling financial fraud, a core priority, and sent a clear and concise message to potential offenders: “Would-be financial criminals should think twice”.

Law enforcement officials also weighed in. Executive Assistant Director Timothy Langan of the FBI’s Criminal, Cyber, Response, and Services Branch restated the Bureau’s commitment to pursuing those who exploit financial institutions for personal gain. “If you engage in fraudulent activity, whether that be in the cryptocurrency space or through other forms of market manipulation, you will be held accountable for your ill-gotten gains,” he declared. Eisenberg faces a maximum sentence of 20 years in prison, with sentencing scheduled for 29 July.

The prosecution was conducted by Special Assistant US Attorney Tian Huang, a member of the National Cryptocurrency Enforcement Team (NCET), alongside Assistant US Attorneys Thomas Burnett and Peter Davis from the Southern District of New York.

While Eisenberg’s prosecution is a clear sign of the US government’s inclination to address manipulative practices within this nascent financial sector and its ability to adapt existing legal frameworks to hold wrongdoers accountable, it is also likely to spark further discussions regarding potential regulatory measures for decentralised exchanges such as Mango Markets.

In United States of America v Eisenberg, the prosecution comprised US Attorneys Noah Solowiejczyk, Peter Davis, Sanford Talkin and Thomas Burnett, together with Tian Huang.

Eisenberg was represented by Ashley Martabano, Brian Klein and Riley Smith of Waymaker, and Noam Greenspan of Talkin, Muccigrosso & Roberts.