NEW YORK – Cryptocurrency trader Avi Eisenberg's criminal fraud and manipulation trial has been decided by a federal judge, who has chosen a 15-person jury that includes a rare bookseller, an elementary school music director and at least two financial experts. The court will then open on Tuesday.
The trial, scheduled to last two weeks, will allege that Eisenberg launched a self-described “high-profit trading strategy” in October 2022, including the Mango Market, which was once a popular venue for cryptocurrency betting on the Solana blockchain. It will be determined whether the law was violated when the system malfunctioned.
The case represents an evolution in the government's efforts to crack down on alleged crimes in decentralized finance (DeFi), a branch of the crypto trading field dominated by the idea that “code is law.” Mango Markets is not tightly controlled like its centralized financial counterparts like Coinbase. Instead, transactions, borrowings, and loans are executed based on smart contracts.
Mr. Eisenberg is accused of illegally gambling on Mango Market futures contracts by manipulating the price of MNGO tokens and borrowing substantially all of Mango's deposits contrary to his position. He took away $110 million in cryptocurrencies that others had deposited on the platform, and later returned some of it in exchange for Mango's backers promising not to pursue prosecution against him.
That promise was not kept.
In court on Monday, the prosecution and defense teased future testimony from Mango founder Dafid Durairaj. Prosecutors said he consulted with a ransomware negotiator for assistance following Eisenberg's deal. This fact may help the jury understand that Mr. Durairaj does not view the negotiations as an “arms-length” deal between two parties, but rather as a hostage situation that could collapse at any time. they argued.
Judge Arun Subramanian partially sided with Eisenberg's lawyers, urging the government not to single out ransomware negotiators to avoid prejudicing the jury. But he said prosecutors can get through negotiations if the defense opens the door by arguing that negotiations are “an arm's length.”
The parties discussed the word “manipulation,” the possible use of that word by witnesses, and its presence in the online Terms of Use document. There was also a conflict over the wording that Mango Market traders have an “obligation” to operate on the site. Was the term a legal concept or a reference to the results of executing a transaction based on a smart contract?
The debate over the finer points of terminology foreshadows the complexities ahead in a trial that will test the government's recent strategy of presenting troubling cryptocurrency misdeeds as simple cases of fraud. Federal authorities also employed this tactic in the prosecution of Sam Bankman Fried last year and in the recent civil fraud case against Terraform Labs and Do Kwon.
But Eisenberg's case perhaps delves even deeper into the philosophical and practical questions surrounding token trading on permissionless blockchains. His case was the first federal criminal trial involving a DeFi trader accused of violating U.S. law in a field once thought to be out of reach.
Potential jurors didn't seem too happy about spending the day of the eclipse on the 15th floor of a federal courtroom. One said she was supposed to watch this generation's event at the Science Museum, not in the jury box. At one point, the judge said he would turn off the lights at the climax of the event, but he did not do so.
Many people prepared solar eclipse glasses. They could use them while judges and lawyers were at odds over mandatory strikes, even if only for a few minutes. Prospective jurors, reporters and even a U.S. marshal took turns gazing out at the partially obscured sun through high windows.
The judge later told the court, “You'll see it again in 20 years.”
