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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 that would involve paying fines and ceasing operations of its MNGO token.

The proposed settlement follows a $110 million exploit by Avraham Eisenberg in October 2022, which severely impacted the protocol. In December of that same year, Eisenberg was accused of 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 these 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. To be clear, this name does not refer to the media organization of the same name. To resolve these allegations, The DAO is proposing a settlement proposal, which includes:

“Payment of a civil penalty of $223,228, payable from the DAO’s treasury to the SEC and permanently enjoining the DAO from violating Sections 5(a) and 5(c) of the Securities Act of 1933.”

If the settlement is accepted, Mango DAO must:

“Immediately cease all 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 render unavailable for trading, sale, offer, or purchase all MNGO Tokens in the possession or control of The DAO within 10 days of the pronouncement of Final Judgment.”

The DAO should also request the removal of MNGO tokens from all crypto exchanges where they are traded and stop approaching trading platforms to allow MNGO trading.

This settlement could jeopardize Mango Markets’ future operations, as the MNGO governance token is an integral part of the protocol’s decision-making processes. The proposal recognizes the need for transparency while preserving confidentiality, stating:

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

The DAO’s treasury currently holds nearly $2 million in USDC and various other assets. If the proposal passes and the SEC accepts the settlement, it would be a significant development in the regulation of decentralized finance (DeFi) protocols.

The proposed settlement reflects the increasing regulatory scrutiny crypto projects are facing, even those that have tried to avoid U.S. investors. Mango Markets had made headlines earlier in 2021 by selling $70 million worth of MNGO tokens in a public sale that excluded U.S. participants.

At the time of writing, data from CoinGecko indicates that the MNGO token is trading for $0.015 on 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.

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