DAO Fails to Protect Mango Markets Hacker in the Face of US Courts

Mango Markets hacker Avraham Eisenberg waived bail at his first hearing in U.S. District Court in New York. The trader, who once tried to protect himself from being sued with a governance proposal voted by Mango DAO, is now charged with three criminal offenses of commodities fraud, commodities manipulation and wire fraud.

On October 11th, 2022, Solana-based DeFi platform Mango Markets was attacked and the hackers profited by manipulating their collateral on Mango, temporarily spiking up their collateral value and then took out massive loans from the Mango treasury for approximately $114 million.

After negotiation with the hackers, Mango Markets' DAO Forum voted on October 15th to approve a proposal that would allow the hackers to keep $47 million as bug bounty, with a total of $67 million worth of stolen tokens returned, and that Mango Markets would not file criminal charges in the case.

On October 16th, Avraham Eisenberg publicly admitted his involvement in the attack, insisting that he action was legitimate open market conduct and he used a highly profitable trading strategy. Daffy Durairaj, co-founder of Mango Markets, even vouched for Eisenberg, saying that he was "cleard of any wrongdoing".

However, on December 26th, 2022, Eisenberg was arrested in Puerto Rico on charges of commodity fraud and commodity manipulation by U.S. prosecutor. In January 2023, the CFTC filed a lawsuit against him for allegedly manipulating the decentralized trading market. Afterwards, the SEC also filed a lawsuit against Eisenberg for allegedly orchestrating an attack on Mango Markets and stealing approximately $116 million worth of crypto assets from Mango Markets.

Mango Markets, which "promised not to sue" Eisenberg at the time, has now "changed its mind". Mango Labs, the company behind Mango Markets, filed a formal lawsuit against Eisenberg in Manhattan on January 25th, 2023, seeking $47 million in restitution and interest.

According to lawyers at Canadian law firm McMillan LLP interviewed by CoinDesk, "The negotiated proposal holds no legal water. In the DAO's system the votes undoubtedly seem powerful, but that doesn't mean that a DAO proposal and vote can cure all ills: like it or not, that's what the courts are for."