The $117 million Mango Markets exploiter has defended that their actions are “legal,” but a lawyer suggests they could still face consequences.
Self-proclaimed digital art dealer Avraham Eisenberg came out as an exploiter in a series of tweets on Oct. 15, claiming that he and a team had pursued a “highly profitable trading strategy” and were “legal open market operations using the protocol as designed.”
I believe that all our actions were legal open market actions using the protocol as designed, even if the development team didn’t foresee all the consequences of setting the parameters as they are.
— Avraham Eisenberg (@avi_eisen) October 15, 2022
The October 11 exploit worked by having Eisenberg and his team manipulate the value of their deposited collateral — the platforms MNGO’s native token — to higher prices, and then borrowed heavily against their inflated collateral, draining Mango’s treasury.
Michael Bacina, a partner at Australian law firm PiperAlderman, told Cointelegraph, “If this had happened in a regulated financial market, it would likely be viewed as market manipulation.”
“Price manipulation is a cousin of misrepresentation, and in many jurisdictions, misleading and deceptive conduct is unlawful and grounds for legal claims.”
Eisenberg has pledged to “make all users complete,” and negotiations between him and the Mango Decentralized Autonomous Organization (DAO) have resulted in the DAO voting to allow Eisenberg to keep $47 million as a “bug bounty,” while the rest is sent back to the treasury.
A provision as part of the proposal states that MNGO token holders “will not pursue criminal investigations or fund freezes” as Eisenburg has returned the agreed portion of the mined cryptocurrency.
However, Bacina said it was “unlikely” that Eisenburg would be absolved of any liability, even by those who voted in favor of the proposal, as the proposal’s wording was “weak”, commenting:
“The wording of the proposal is weak and the circumstances are such that the offer of a release is questionable.”
However, Bacina said there may be “limited commercial incentive” to sue Eisenburg since any legal rights would be reduced by the amount a member received as a result of the proposal.
“Assuming claims survive the Proposal, all claims would still need to be reduced by amounts received by a member as a result of the Proposal, which may mean that many members have limited commercial incentive to sue Mr. Eisenberg,” explained he.
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A portion of the $67 million worth of crypto returned to the platform will now be used to reimburse affected users under the DAO-approved reimbursement plan.
Eisenberg claims that the mined crypto he returned is similar to automatic deleveraging on cryptocurrency exchanges, where a portion of profits are recovered from profitable traders to cover exchange losses.
Cointelegraph reached out to Eisenberg for comment, but did not immediately receive a response.