The entity behind a decentralized cryptocurrency exchange sued ex-employees in a San Juan, Puerto Rico, federal court over their alleged involvement in a scheme that stole over $2.5 million and inflicted damage exceeding $10 million to the company.
Michael Burshteyn, a shareholder at Greenberg Traurig in its San Francisco office who represents the plaintiff, Mango Labs, said in filing the complaint that it was not just that the defendants—John Kramer, Maximilian Schneider and 10 unknown individuals—attempted to allegedly profit unjustly in violation of their duties.
“Since they’re sitting on these tokens, they can use them to vote in governance proposals and to frustrate DAO governance, which they’ve already done, and that’s outlined in the complaint,” Burshteyn said in an interview. “That’s particularly egregious, and you don’t see that in your typical partnership dispute as much, which makes this case unique.”
Now, the case is pending before U.S. District Judge Gina R. Mendez-Miro for the District of Puerto Rico.
Mango Markets, the crypto exchange, was launched in February 2021 and quickly became among the most utilized decentralized finance protocols. The Mango Decentralized Autonomous Organization, or Mango DAO, governs the protocol. Mango Labs is an entity that develops software, has been funded by the Mango DAO, and has been assigned the claims of the Mango DAO and individual members of the Mango DAO in this action.
Prior to FTX’s collapse, its users were allowed to deposit the token, MNGO, on its platform, court records show. However, following FTX’s collapse, the MNGO tokens deposited on FTX were under the control of the FTX bankruptcy estate. In October 2023, the bankruptcy court ordered the FTX estate to sell off certain assets, including its MNGO tokens.
The defendants were Mango DAO personnel who previously worked in trusted positions and were charged with handling “highly sensitive and confidential tasks,” such as assisting in litigation and regulatory investigations that the organization faced, per the complaint. That included dealing with an over $100 million attack on Mango Markets and managing the Mango DAO treasury.
However, in a “brazen abuse of this trust,” the complaint says that the defendants allegedly told the Mango DAO and its members that they would repurchase the Mango tokens on behalf of the Mango DAO and transfer the tokens close to cost, which would be accretive to the Mango DAO and token holders because the price of the tokens was below the value of the assets in the Mango DAO treasury.
Instead, the defendants allegedly made contractual arrangements to flip 330 million tokens held by the FTX estate and hid their identity from Mango DAO. Their goal was to sell the tokens “at an incredible markup and pocket the profits,” per the complaint. Kramer then put to vote a proposal for Mango DAO members to sell their tokens back to the Mango DAO at an artificially inflated price.
The proposal was restricted to wallets that participated in the governance of the Mango DAO, according to the complaint. Just one week before making the proposal, the defendants were accused of depositing all 330 million MNGO tokens purchased from the FTX estate into Mango DAO governance, effectively enabling the defendants to have disproportionate voting power.
The defendants allegedly obscured their identities on the blockchain by using a series of crypto wallets that would make it harder to trace them and refused to admit that they were the purchasers of the 330 million tokens, according to the 36-page complaint. Soon after, the Mango DAO purchased nearly 73 million tokens for $2.5 million.
“Mango Labs and members of the Mango DAO have implored defendants to simply transfer their unlawfully acquired MNGO tokens to the Mango DAO at cost, as is their obligation,” the plaintiffs alleged. “Yet every time that Mango Labs has confronted defendants about their fraud and breach of duty, they have doubled down and attempted to pressure Mango Labs to stop.”