Mango Markets, once a leading decentralized exchange on Solana, is preparing to settle with the SEC over allegations of securities law violations.
Settlement Proposal
The protocol’s governing body, Mango DAO, has initiated a vote on a settlement proposal that would involve paying fines and ceasing operations of its MNGO token. The proposed settlement comes in the wake of a $110 million exploit by Avraham Eisenberg in October 2022, which severely impacted the protocol.
Context and Implications
By December of the same year, Eisenberg was charged with fraud and market manipulation. According to the DAO’s proposal: “There have been investigations by US regulators (DOJ, SEC, and CFTC) against Eisenberg for his role in the exploit. In addition to those actions, some regulators have made their own inquiries into Mango Markets.” The SEC alleges that the DAO violated Sections 5(a) and 5(c) of the Securities Act of 1933, while Mango Labs and Blockworks Foundation are accused of violating Section 15(a) of the Securities Exchange Act of 1934. To resolve these allegations, the DAO proposes a settlement offer including: “The payment of a civil penalty in the amount of $223,228, to be paid from the DAO Treasury to the SEC and permanently enjoin the DAO from violating Sections 5(a) and 5(c) of the Securities Act of 1933.” If accepted, the settlement would require Mango DAO to: “Immediately cease all of its offers, sales or resales of MNGO tokens on the protocol through the means or instrumentalities of interstate commerce in the United States; destroy or otherwise make unavailable for trading, selling, offering, or purchasing any and all MNGO tokens in the DAO’s possession or control within 10 days of the entry of the Final Judgment.”
Future of Mango Markets
This settlement could potentially jeopardize Mango Markets’ future operations, as the MNGO governance token is integral to the protocol’s decision-making processes. The proposal acknowledges the need for transparency while maintaining confidentiality, stating: “Due to the rules regarding the confidentiality of settlement discussions and because the SEC’s investigation is ongoing and non-public as a matter of law, the DAO Representative is limited in the information that it is permitted to share in a non-privileged context.” The DAO’s treasury currently holds nearly $2 million in USDC and various other assets. If the proposal passes and the SEC accepts the settlement, it would mark a significant development in the regulation of decentralized finance (DeFi) protocols. The proposed settlement reflects the increasing regulatory scrutiny faced by crypto projects, even those that attempted to avoid US investors. Mango Markets had previously made headlines in 2021 for selling $70 million worth of MNGO tokens in a public sale that excluded US participants. At the time of writing, data from CoinStats indicates that the MNGO token is trading at $0.015 over an average daily volume of $147,000. The outcome of this settlement could set a precedent for how other DeFi protocols interact with securities regulators in the future.
The proposed settlement between Mango Markets and the SEC is a significant step in advancing regulatory compliance for crypto projects. The outcome of this case could have substantial implications for the future operations of Mango Markets and set a precedent for other DeFi platforms.
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