The US regulator, the US Securities and Exchange Commission (SEC), has decided to prosecute Avraham Eisenberg, a decentralized finance (DeFi) trader. He is being accused of drying up the decentralized exchange Mango Market, based on the Solana token. On the side of the SEC, this is not the first lawsuit of this type.
MNGO token: qualification as a security by the regulator
This is the latest deal to come out of Avraham Eisenberg’s “highly profitable business strategy”. The SEC on Friday indicted decentralized finance trader Avraham Eisenberg. It is subject of a complaint for draining $116 million from the Solana-based decentralized exchange Mango Markets. Eisenberg is 27 and has previously faced criminal charges. The latter concerned fraud related to raw materials. He was allegedly instrumental in orchestrating a highly profitable trading strategy against Mango Markets last October.
This action could have wider consequences. Indeed, the SEC accusations are based on the fact that the governance token of Mango Markets would be a security. This argument had already been made in previous actions that put the crypto industry on its toes. In addition to its actions, the SEC complaint details the Howey’s test standards. This is the test the agency used to qualify MNGO as a security. The SEC has already issued this reminder in previous cases. This was the case, for example, in the insider trading case of the former director of Coinbase (COIN). The SEC had labeled nine tokens as unregistered securities without directly accusing the token issuers or Coinbase. As in this case, Mango’s action does not target Mango Markets, the decentralized exchange.
A significant legal risk
The SEC’s devious listings of tokens it considers securities have sent shivers down the spine of law firms that represent crypto clients. The agency said that despite labeling MNGO as ” governance token “, this one would have been bought and sold as a security of crypto asset. Indeed, its holders would have had profit expectations and would have engaged in a joint venture. These are two of the factors the SEC looks for to identify investment contracts that fall under securities laws. Additionally, MNGO holders could use their tokens to vote in decisions governing the operations of Mango Markets.
As a result, SEC Chairman Gary Gensler and his law enforcement officials have recently escalated the warnings. They said they are losing patience with unregistered securities and the unregistered exchanges where they are traded. The Commodity Futures Trading Commission already hit out at Eisenberg last week accusing him of manipulating the market.
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