Mango Markets DAO Proposes $223,000 Settlement With SEC Over Securities Violations

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Mango Markets, once a leading decentralized exchange on Solana, is preparing to settle allegations of securities law violations with the SEC. The protocol’s governing body, Mango DAO, has initiated a vote on a proposed settlement that would involve paying fines and ceasing operations of its MNGO token.

The proposed settlement follows a $110 million exploit by Avraham Eisenberg in October 2022 that severely damaged the protocol. In December of the same year, Eisenberg was charged with fraud and market manipulation. According to the DAO proposal:

“There were investigations by US regulators (DOJ, SEC and CFTC) against Eisenberg for his role in the exploit. In addition to these actions, some regulators have made their own inquiries into Mango Markets.”

The SEC alleges that DAO violated Sections 5(a) and 5(c) of the Securities Act of 1933, while Mango Labs and the Blockworks Foundation are accused of violating Section 15(a) of the Securities Exchange Act of 1934. For clarity, this name does not refer to the media organization of the same name. To resolve these allegations, DAO is proposing a settlement offer that includes:

“Payment of a civil penalty in the amount of $223,228 to be paid from DAO’s Treasury to the SEC and to permanently enjoin DAO from violating Sections 5(a) and 5(c) of the Securities Act of 1933.”

If accepted, the agreement would require Mango DAO to:

“Immediately cease all offers, sales, or resales of MNGO tokens in the protocol through the means or instrumentalities of interstate commerce in the United States; destroy or otherwise be unavailable for trading, sale, offering or purchase of any and all MNGO Tokens in the possession or control of The DAO within 10 days of entry of the Final Judgment.”

The DAO should also require the removal of MNGO tokens from all crypto exchanges where it is traded and refrain from requiring any trading platforms to allow MNGO trading.

This settlement could jeopardize Mango Markets’ future operations, as the NGO’s governance token is an integral part of the protocol’s decision-making processes. The proposal recognizes the need for transparency while maintaining confidentiality, stating:

“Due to the confidentiality rules of regulatory discussions and because the SEC’s investigation is ongoing and not legally public, the DAO Representative is limited in what information he is permitted to share in a non-privileged context.”

The DAO treasury currently holds nearly $2 million in USDC and various other assets. If the proposal is approved and the SEC accepts the settlement, it would mark a significant development in the regulation of decentralized finance (DeFi) protocols.

The proposed deal reflects the increasing regulatory scrutiny facing crypto projects, even those that have tried to avoid US investors. Mango Markets also 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 CoinGecko indicates that the MNGO token is trading at $0.015 above an average daily volume of $147,000. The outcome of this agreement could set a precedent for how other DeFi protocols interact with securities regulators in the future.

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