The Securities and Exchange Commission (SEC) has announced settled charges against Mango DAO and Blockworks Foundation (which is not related to the NY-based media and research company) for the unregistered sale of MNGO tokens, which raised more than $70 million from investors worldwide.
The settlements also address charges against Blockworks Foundation and Mango Labs LLC for acting as unregistered brokers in connection with trading activities on the Mango Markets platform.
According to the SEC, Mango DAO and Blockworks Foundation offered and sold MNGO tokens, the governance tokens of Mango Markets, without registering the offerings. From August 2021, the two entities raised millions from investors, including in the United States, without adhering to federal securities laws, depriving investors of essential protections.
Additionally, Blockworks Foundation and Mango Labs were found to have operated as unregistered brokers by recruiting users for Mango Markets and providing investment advice. They also facilitated securities transactions by assisting customers in opening accounts and managing funds on the platform.
“Our view has been that the label ‘DAO’ does not change the reality of who is behind a project”
The settlement requires Mango DAO, Blockworks Foundation, and Mango Labs to pay nearly $700,000 in civil penalties. They have also agreed to destroy their MNGO tokens, request their removal from trading platforms, and cease any efforts to have them traded in the future. These settlements are subject to court approval.
Jorge G. Tenreiro, Acting Chief of the Crypto Assets and Cyber Unit, said: “Since the inception of our crypto enforcement program, our view has been that the label ‘DAO’ does not change the reality of who is behind a project, what activities they engage in, or whether their activities need to be registered. Nor does engaging in intermediation of securities with the aid of automated or open source software change the nature of such activities. If you engage in securities-intermediary functions, you must register or be exempt from doing so, regardless of the technology employed and the type of legal entity used.”
The settlement follows a high-profile incident in 2022 where Mango Markets was exploited by Avraham Eisenberg, resulting in $100 million being drained from the platform. Eisenberg had claimed that his actions were part of a legal “trading strategy,” but his exploit later led to criminal charges for market manipulation.
The SEC emphasized that the use of decentralized structures like DAOs or open-source software doesn’t exempt entities from compliance with securities laws. If an entity acts as a securities intermediary, it must either register or be exempt from doing so, regardless of the underlying technology employed.
Mango DAO and Mango Markets have also faced other legal scrutiny. In August 2024, Mango DAO put a community vote to settle with the SEC and destroy MNGO tokens, which passed in two days. Furthermore, Mango Markets offered a $500,000 settlement to the Commodity Futures Trading Commission (CFTC) to end another investigation against it, also without admitting wrongdoing.
MNGO destruction raises questions about platform’s future
It was last month that the governing body behind Mango Markets, Mango DAO, launched a vote on Monday for an “SEC settlement offer proposal” that would see the group pay hundreds of thousands of dollars in fines, destroy its MNGO tokens, and seek their delisting from other trading platforms.
The obsolescence of the MNGO governance token, which investors use for voting on key matters such as token listings, buybacks, and debt repayments, raises questions about the platform’s ability to function.
Mango Markets has struggled to recover from the damage inflicted by opportunistic trader Avraham Eisenberg’s “highly profitable trading strategy” in October 2022, which drained the protocol of $110 million.
Before Eisenberg’s fraud and manipulation trial, Mango Markets faced a “regulatory inquiry.” In addition to the SEC, Mango Markets is under investigation by the Department of Justice and the Commodity Futures Trading Commission.
Mango DAO’s treasury currently holds nearly $2 million in USDC and other assets, though the practical value of these assets was not immediately clear.
During Solana’s 2021 bull run, Mango Markets made headlines by selling $70 million worth of MNGO tokens to the public. At the time, the sale was closed to U.S. investors, likely to avoid regulatory scrutiny, a strategy that has not protected it from the current legal challenges.
