NEW YORK — The criminal fraud and manipulation trial of cryptocurrency trader Avi Eisenberg will begin Tuesday after a federal judge seated a 15-person jury that includes a rare books seller, an elementary school music director and at least two financial professionals.
The trial is expected to last two weeks, and will determine whether Eisenberg broke the law when in October 2022 he published a “highly profitable trading strategy” that crippled Mango Markets, a once-popular venue for betting on cryptocurrencies on the Solana blockchain.
The trial represents a development in the government's attempts to police alleged crimes in decentralized finance (DeFi), a sector of the cryptocurrency trading space governed by the idea that “the law is the law.” Mango Markets are not as tightly regulated as their centralized finance counterparts, such as Coinbase. Instead, trades, borrowings and loans are executed on smart contracts.
Eisenberg is accused of illegally manipulating Mango Markets futures contracts by manipulating the price of the MNGO token and then effectively borrowing all of Mango's deposits against his position. He absconded with $110 million in cryptocurrencies that other people had deposited on the platform, and later returned part of that in exchange for a promise that Mango's supporters would not seek his prosecution.
This promise was not fulfilled.
In court on Monday, prosecutors and the defense raised testimony coming from Mango's founder, David Durairaj. Prosecutors said he spoke with a ransomware negotiator to get help in the wake of Eisenberg's trade. This fact, they said, could help the jury understand that Durairaj did not view the negotiations as a “far-fetched” deal between two parties, but rather as a hostage situation that could collapse at any time.
Judge Arun Subramanian sided partly with Eisenberg's defense team and asked the government not to raise the ransomware negotiator, fearing it would prejudice the jury. But he said that if the defense opened the door by saying negotiations were “far-fetched,” prosecutors could walk through it.
The two parties argued over the word “manipulation” and its potential use by witnesses and its presence in online terms of service documents. They also clashed over the wording of what traders at Mango Markets are “obligated” to do when working on the site. Was that word a legal concept, or rather a reference to the results of executing a transaction on a smart contract?
Arguments over the finer details portend complications ahead in a trial that will test the government's latest strategy of presenting complex crypto misdeeds as simple cases of fraud. The feds used this tactic in the Sam Bankman Fried trial last year as well as in the recent civil fraud case against Terraform Labs and Do Kwon.
But Eisenberg's case may delve deeper into the philosophical and practical questions about trading cryptocurrencies on permissionless blockchains. It's the first federal criminal trial involving a DeFi trader accused of violating US law in a sector that previously considered itself out of reach.
Potential jurors didn't seem happy about spending eclipse day on the 15th floor of a federal courthouse. One of them noted that she was supposed to watch the Generations event at the Science Museum, not at the jury stand. At one point, the judge said he would turn off the lights during the height of the event, which he did not do.
More than a few came prepared with eclipse glasses. They were able to use it, if only for a few minutes, while the judge and lawyers avoided peremptory strikes. Potential jurors, reporters, and even the U.S. Marshal took turns looking out the tall windows into the partially covered sun.
“You can see that again in 20 years,” the judge later told the courtroom.
