A crypto trader who exploited code on the Mango Markets DeFi platform maintains that he only did what the code allowed him to do, and that “code is law”.
Arrested and accused
Cryptocurrency trader Avraham Eisenberg has been arrested in Puerto Rico and charged with fraud by the US Attorney's Office in Manhattan in connection with his alleged exploitation of decentralised finance platform Mango Markets in October.
The trader is accused of using two accounts he controlled to manipulate the price of Mango perpetual swaps, which are futures that allow traders to keep their positions open, and then using the swaps to borrow and withdraw approximately $100 million worth of various tokens from the deposits of other investors on Mango Markets.
A legal trading strategy?
Despite the largely unregulated nature of DeFi, Eisenberg is facing legal consequences for his alleged fraudulent activities, which he had previously boasted about on social media as a "highly profitable" and legal trading strategy.
Eisenberg had been openly discussing his activities on Twitter with over 40,000 followers, claiming that he was pushing the DeFi industry to improve its risk controls.
However, many of the strategies Eisenberg used, such as generating trades to artificially inflate the price of a cryptocurrency and then borrowing against the artificially higher-valued asset, are considered manipulation in traditional markets and are illegal.
Code is law?
Despite this, the decentralised autonomous organisation (DAO) that runs Mango Markets agreed to allow Eisenberg to keep almost half of the over $100 million in assets he obtained in exchange for releasing the rest of the funds. Eisenberg remained convinced that he had done nothing wrong.
Eisenberg's claims of innocence may be rooted in the "code is law" philosophy of DeFi, which holds that the ultimate authority in cryptocurrency is the underlying computer code of most projects. According to this belief, if the code permits a trade to be executed, it is considered legally binding within the world of cryptocurrency. This theory is often cited by proponents of DeFi as a justification for their actions.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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Has Bankman-Fried reached a deal with the US authorities? Yes, if a report from Reuters is to be believed.
Following his extradition from the Bahamas, the FTX founder was granted bail, moving in with his parents in Palo Alto, California.
SBF Expected To Enter Plea
According to reports, Sam Bankman-Fried is expected to enter a plea over his involvement in the FTX collapse which led to millions being defrauded from investors, and billions in customer funds being lost. The collapse of FTX, one of the most prominent cryptocurrency exchanges in the space, sent shockwaves through the industry and is touted as the worst collapse in recent financial history.
The Case Against Bankman-Fried
According to court records, Bankman-Fried is expected to be arraigned on the 3rd of January 2023 before US District Judge Lewis Kaplan at the Manhattan Federal Court. Kaplan was assigned to the case after the original judge had to recuse herself due to a conflict of interest. This was because her husband’s law firm had advised FTX before it collapsed. Bankman-Fried faces a long list of charges brought in by prosecutors, who accused him of engaging in a years-long “fraud of epic proportions.”
Bankman-Fried is accused of using customer deposits, which he redirected to the crypto hedge fund, Alameda Research, to purchase real estate and make political donations. He is charged with two counts of wire fraud and six counts of conspiracy, including laundering money and committing campaign finance violations. If Bankman-Fried is convicted, he could spend decades behind bars.
Bankman-Fried has been a significant political donor, with reports claiming that the FTX founder donated millions to both major political parties in the United States, the Democrats, and the Republicans. It is speculated that these donations were made most likely to protect himself in case the operations did not go to plan. According to the data available, the Democrats had received over $40 million from FTX and representatives of the exchange, while Republicans received over $23 million from the exchange.
Caroline Ellison, Gary Wang To Cooperate With Authorities
Meanwhile, two associates of Bankman-Fried, Caroline Ellison, CEO of Alameda Research, and Gary Wang, co-founder of FTX, had pleaded guilty to defrauding investors. Prosecutors revealed that both had agreed to cooperate with the authorities, which puts significant pressure on the former billionaire. Damian Williams, Manhattan US Attorney, urged others associated with the fraud to come forward, stating,
“If you participated in misconduct at FTX or Alameda, now is the time to get ahead of it,” Williams said. “We are moving quickly, and our patience is not eternal. I also said that last week’s announcement would not be our last, and let me be clear once again, neither is today’s.”
While no comment was made from the attorneys of Caroline Ellison, a lawyer for Gary Wang stated,
“Gary has accepted responsibility for his actions and takes seriously his obligations as a cooperating witness.”
Could Bankman-Fried Get A Similar Deal?
It is speculated that SBF could get similar deals to Ellison and Wang, with both having already paid hefty fines. However, the authorities have yet to provide further details on their course of action regarding Bankman-Fried. Speaking about the case and the options before Bankman-Fried, Jay Clayton, former US Securities and Exchange Commission Chairman, stated,
“All of these things will be the subject of negotiation if there is a plea arrangement. Like you said before, there is a ton of considerations that are going to go into this (political, legal, financial, etc.). I think there will be tremendous pressure to reach a resolution.”
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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