Mango Markets DAO proposes $223,000 settlement with SEC over securities violations

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 started 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 lawsuit Exploitation of Avraham Eisenberg in October 2022, which severely affected the protocol. In December of the same year, Eisenberg was Accused of fraud and market manipulationAccording to the DAO proposal:

“US regulators (DOJ, SEC, and CFTC) have all conducted investigations against Eisenberg for his role in the exploit. In addition to those actions, some regulators have conducted their own investigations 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. For clarity, this name does not refer to the media organization of the same name. To resolve these allegations, The DAO is proposing a settlement offer that includes:

“The payment of a civil penalty in the amount of $223,228, to be paid by the DAO Treasury to the SEC and which will permanently enjoin the 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 make unavailable for trade, sale, offer, or purchase any and all MNGO tokens in the DAO’s possession or control within 10 days of the Final Judgment becoming effective.”

The DAO would also have to request the removal of MNGO tokens from all cryptocurrency exchanges where they are traded and refrain from requesting any trading platform to allow trading of MNGO.

This agreement could jeopardize Mango Markets’ future operations, as the MNGO governance token is central to the protocol’s decision-making processes. The proposal recognizes the need for transparency while maintaining confidentiality, and states:

“Due to rules regarding the confidentiality of settlement negotiations and because the SEC investigation is ongoing and not public by law, the DAO Representative is limited in the information he is permitted to share in a non-privileged context.”

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

The proposed deal reflects the growing regulatory scrutiny facing cryptocurrency projects, even those that sought to avoid U.S. investors. Mango Markets had previously made headlines in 2021 for selling $70 million worth of MNGO tokens in a public sale that excluded U.S. participants.

At the time of writing, CoinGecko data indicates that the MNGO token is trading at $0.015 on an average daily volume of $147,000. The outcome of this deal could set a precedent for how other DeFi protocols interact with securities regulators in the future.

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