Mango Markets to Resume Crypto Trading, SEC Be Damned

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The developers behind closed decentralized crypto exchange Mango Markets say they are moving forward with a relaunch of the project even as the United States Securities and Exchange Commission (SEC) alleges that the project’s native token, MNGO, is a security.

The token’s SEC labeling raises thorny issues over whether Mango Markets version 4 can continue without facing the wrath of regulators. The SEC has not alleged any wrongdoing on Mango’s part. But the agency last week accused MNGO trader Avraham Eisenberg, which drained $116 million from the stock market in October, of securities market manipulation.

Securities attorneys not involved in the case told CoinDesk that the SEC may be laying the groundwork to bring a lawsuit against the exchange that issued MNGO to its investors when it launched in 2021.

By noting that allegedly ineligible U.S. investors participated in the token sale, the SEC implies it also has the authority to bring a future case claiming it is an unregistered securities offering, Howard said. Fisher, a former SEC attorney and partner at the law firm. Moses Singer.

The SEC declined to comment.

During a Sunday call with Mango developers, which CoinDesk attended, project founder Daffy Durairaj pledged to deliver the software upgrade that will restart Mango Markets, the once-popular venue for trading, borrowing and lending cryptocurrencies on Solana. It turned dark in October after a trader emptied Mango and its customers of $116 million worth of crypto.

That exploiter, Eisenberg, 27, was arrested in December on charges of commodity fraud and market manipulation stemming from his self-proclaimed highly profitable business strategy. Just last week, the SEC filed its own lawsuit against Eisenberg and Mangos’ alleged native governance token, MNGO, is a security. (On Thursday, Mango sued Eisenberg for more than $47 million).

MNGO, a crypto governance token that grants its holders voting rights over Mango Markets operations, has been offered and sold as collateral, the SEC said, noting that it is investigating other securities law violations. securities parallel to the Eisenberg case. This ominous promise could have major implications for the US team at Mango Markets if the SEC decides to proceed.

The story continues

It doesn’t matter: Mangos developers are pushing with the relaunch of trading platforms. During a developer call on Sunday, Mango Markets founder Daffy Durairaj gave an overview of the progress. It was the first Mangos dev meeting following Eisenberg’s exploit, and Durairaj tried to set a positive tone.

Reopening of mango markets

For him and other Mangos developers, the long-planned version(v)4 upgrade is the protocols’ ticket back to relevance in a drastically changed landscape for Solana DeFi. Solana-based trading protocols have lost over 70% of their total value locked (TVL) since Nov. 1, days before crypto exchange FTX collapsed, according to DeFiLlama, (Crypto DeFi lost in total around 14% over the same period.)

The specter of SEC looms over v4. In the lawsuit against Eisenberg, SEC attorneys went out of their way to mention that Mango touted the upcoming launch of Mango Markets version 4 on its website and social media.

The reference seemed odd because it had no apparent connection to the SEC charges against Eisenberg, Jeffrey Gebert, a securities partner at Canadian law firm McMillan LLP, told CoinDesk.

There are concerns about the launch of Mango v4s, Durairaj told the SEC to the roughly 50 developer call attendees.

I don’t know exactly what worries them, he said. I don’t know why they added this in the complaint, so there is something to discuss.

These lawsuits are proving to be a costly headache for Mango Labs, the American company that positions itself as the legal defender of MangoDAO. It spent around $400,000 in legal fees last year and expects to pay an even bigger bill in 2023, Durairaj said on the developer call. He said Mango Labs will apply to the decentralized autonomous organization for a $1.5 million grant, in part to pay for attorneys.

Lawyers are very expensive. Every time you talk to them, it’s a lot of money, which kind of sucks, he said on the call.

We want to make sure the DAO is defended, legally represented, and well defended in case anyone wants to file a lawsuit or file a class action lawsuit, even if the SEC wants to file a lawsuit.

Durairaj declined to be interviewed for this article.

SEC against Mango?

The SEC’s case against Eisenberg treats MNGO as a security (if it didn’t, it would be outside the jurisdiction of the SEC). This distinction, which it had not previously applied to MNGO, could spell big trouble for the project if the agency also claims the token is unregistered, several securities lawyers told CoinDesk.

A possible issue stems from the $70 million token sale of Mango Markets in August 2021. It claimed to bar U.S. investors from participating in the sale, a move CoinDesk noted at the time was likely an attempt to avoid scrutiny. regulatory. Despite this self-imposed ban, the SEC lawsuit claims that US investors did indeed purchase the token from certain mango creators living in the US.

The SEC, in its lawsuit against Eisenberg, also cast doubt on the degree of decentralization of Mangos’ so-called governance token, as regulators referred to MNGO. The SEC alleged that MNGO token holders had limited and minimal control over the protocol and most abstained from voting, while insiders dominated votes. He called the governance rights of the DAOs illusory.

The suit was also chosen at the Mangos Upgrade Council, a seven-member group of Solana and Mango insiders who can vote to pass changes to Mango Markets without general DAO input. The Upgrade Council had shut down Mango v3 in response to Eisenberg’s exploit, which was largely based on votes from two of its creators.

Ron Geffner, a partner at Sadis & Goldberg LLP and a former SEC Enforcement Division attorney, pointed out the risks creators face in moving forward with any project so closely tied to purported security.

It’s reasonable to expect the SEC to determine, in most cases, that every cryptocurrency offering is a securities offering, he said. As such, it is reasonable to expect that the safest course of action is for issuers and related parties to comply with securities laws.

V4 Upgrades

Durairaj, the founder of Mango, said during Sunday’s developer call that Mango v4 will fix the issues that led to Eisenberg’s exploit. For example, a planned shift prevents risk from one asset trading pool from shifting to another pool, he said.

The hour-long call also included a discussion about the future of the Mangos Upgrade Council. Durairaj said the advice was still meant to be a temporary feature that could react to security issues, like the Eisenberg exploit, faster than a full DAO vote. He said the DAO might drop the advice if we have a situation where Mango v4 is really robust.

It was good to go ahead and launch Mango v4 under the authority of DAO, Durairaj said, although he cautioned that some features were still in the works.

Developers are nearly done building an Android version of Mango that will serve as Venmo for crypto, he said.

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