Mango Markets Faces SEC Settlement

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

Impact of 2022 Exploit

The proposed settlement comes in the wake of a $110 million exploit by Avraham Eisenberg in October 2022, which severely impacted the protocol. 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 investigated Mango Markets."

Allegations and Proposed Settlement

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.

For clarity, this name does not refer to the media organization using the same name. To resolve these allegations, the DAO proposes a settlement offer including:

"The payment of a civil penalty for $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."

Consequences for MNGO Token

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 MNGO tokens in the DAO's possession or control within ten days of the entry of the Final Judgment."

The DAO would also need to request the removal of MNGO tokens from all crypto exchanges where they are traded and refrain from soliciting trading platforms to allow MNGO trading.

Implications for Future Operations

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 it is permitted to share in a non-privileged context."

The DAO's treasury currently holds nearly $2 million in USDC and 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.

Broader Regulatory Implications

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 CoinGecko 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.