Market Manipulation Cases' Challenges Underlined by Withdrawn Fraud Accusations
In the world of finance, market manipulation charges can be complex, especially when they involve decentralized platforms and intermingled market forces. Two recent cases, United States v. Eisenberg and Johnson v. United States, highlight this complexity.
In the Eisenberg case, the defendant, Mango Markets trader Avraham Eisenberg, was charged with commodities fraud, commodities manipulation, and wire fraud in January 2023. Although Eisenberg was found to have manipulated the Mango Markets (MNGO) price to obtain loans, his convictions were overturned due to a lack of venue. The prosecution failed to show that the offenses occurred in New York, where the court sat. Eisenberg was not physically in New York, nor were Mango Markets or other trading platforms located there. Incidental connections like a user or technology vendor being in New York were insufficient to establish venue.
Moreover, the court found insufficient evidence to support wire fraud charges because the platform was "permissionless and automatic," without formal rules against borrowing or manipulation. As a result, no material misrepresentation was proved.
The Johnson case, while not covered in detail in the search results, shares similarities with Eisenberg's. Mark Johnson, the former head of foreign exchange trading of a large international bank, was convicted of wire fraud and conspiracy to commit wire fraud in 2017 for allegedly manipulating the 3 p.m. fix price for British pounds. However, the Second Circuit overturned Johnson's conviction in 2022, citing insufficient evidence to support the convictions.
These cases underscore the stringent requirements courts impose on venue and evidence demonstrating the defendant's direct and wrongful control over the market or trading platform. Confounding factors like decentralized platforms, multiple users, and geographic dispersion frequently complicate successful prosecution of market manipulation.
The FX market, which does not have a closing price, instead relying on vendors publishing a "fix" price, a benchmark exchange rate for the pair of currencies being traded, adds an additional layer of complexity.
In conclusion, as these cases demonstrate, courts handling market manipulation charges must carefully scrutinize the evidence to determine the defendant's specific culpability, particularly in terms of jurisdiction, the defendant’s intent, and the clarity of the alleged manipulative acts. The decentralized nature of some platforms, the intermingling of market forces, and the geographic dispersion of trading activities can make it challenging to prove manipulation beyond a reasonable doubt.
[1] Source: Various court documents and news reports.
- Given the complexity of market manipulation charges, especially in the context of decentralized platforms, the technology used in such platforms can play a significant role in court cases, as seen in the Eisenberg and Johnson cases, where the "permissionless and automatic" nature of the platforms was a key factor in both acquittals.
- As evidenced by the Johnson case, the FX market, which lacks a closing price and relies on benchmark exchange rates, can add another layer of complexity in prosecuting cases of market manipulation due to the challenges in proving specific culpability, particularly in terms of the defendant's intent and the clarity of the manipulative acts.
