Crypto Scam Criminal Trial Tests 'Code Is Law' Claim by Trader (bloomberg.com) 87
A jailed trader accused of stealing $110 million on the Mango Markets exchange faces a criminal trial this week that will test the reach of a US crackdown on cryptocurrencies. From a report: Prosecutors charged Avraham Eisenberg with manipulating Mango Markets futures contracts on Oct. 11, 2022, to boost the price of swaps by 1,300% in 20 minutes. He then "borrowed" from the exchange against the inflated value of those contracts, a move the government claims was a theft. Jury selection begins Monday in New York federal court, where groundbreaking crypto cases have played out. FTX co-founder Sam Bankman-Fried was sentenced there last month to 25 years in prison for orchestrating a multibillion-dollar scheme, while Terraform Labs Pte. and co-founder Do Kwon were found liable Friday for fraud in civil trial over the firm's 2022 collapse, which wiped out $40 billion in investor assets.
Eisenberg, a self-described "applied game theorist," claims his actions weren't theft at all. Rather, he says, he legally exploited a weakness in the decentralized finance application. The trial will apparently be the first time a US criminal jury will weigh what type of "DeFi" transactions are legal. In the crypto world, where digital blockchains govern who owns what, the virtual ecosystem is built around the notion that "code is law." It means that if something isn't explicitly forbidden by terms of a crypto platform, then government can't intercede. But prosecutors say those rules can't protect traders against possible criminal charges for market manipulation or fraud.
Eisenberg, a self-described "applied game theorist," claims his actions weren't theft at all. Rather, he says, he legally exploited a weakness in the decentralized finance application. The trial will apparently be the first time a US criminal jury will weigh what type of "DeFi" transactions are legal. In the crypto world, where digital blockchains govern who owns what, the virtual ecosystem is built around the notion that "code is law." It means that if something isn't explicitly forbidden by terms of a crypto platform, then government can't intercede. But prosecutors say those rules can't protect traders against possible criminal charges for market manipulation or fraud.
Re: Another Legal Case Of Dubious Merit (Score:1)
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True, but I highly doubt you could drag the maker of the knife to court, or Mastercard for facilitating the purchase.
Re:Another Legal Case Of Dubious Merit (Score:5, Interesting)
If an ATM accidentally dispenses you an extra $1000, it is still stealing to keep it. If a software platform accidentally lets you do something illegal, then you still broke the law.
If the lender's platform gave this guy an illegal loan that he should have known was illegal, it's his problem, not the lender's.
Re:Another Legal Case Of Dubious Merit (Score:5, Interesting)
Well this is perhaps a little murky.
Think about it this way. An ATM is a tool for execution of an existing agreement you have with the bank subject to legal regulations.
In the case of some of this crypto currency, the legal contract is defined by what the reference implementation does.. Sorta like if the bank hired a carnival barker and said "step right up step right up you sir, you look like a clever hacker, try your luck our ATM for just $50 bucks you can have hour with the machine to do anything like from the terminal, you can keep whatever it spits out!"
There would be nothing legally wrong with that 'verbal contract'
At the same time, legally speaking I have oversimplified the agreements most of these DeFi schemes actually use and I think most of us on Slashdot would agree that code can express intent while also not being bug free. If you intentionally steer some system into a bizzare corner case is that any different than violating the spirit of the law by exploiting some minutia about the 'letter', which our legal system generally does not take favorable a view of except in cases where the actual intent/spirit does seem to a have ambiguity in hindsight. If you shoot someone while standing on top of a US Mailbox, I doubt the State and Local people or the courts are to likely to embrace the idea they should hand you over to the federal courts for example.
The illegal thing was not taking the loan though (Score:2)
Taking a loan against crypto holdings is all above board. It is incidental.
The potential legal issue is how he got the crypto holdings to be valued that much.
I imagine this is a competition between various laws against market manipulation, and "the code is the law i.e. the system allowed the market influence without hacking or anything - just interesting timing used probably."
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That is the entire essential premise of cryptocurrency systems and smart-contract systems.
If you don't understand and agree to this premise, you wouldn't, as a reasonable person, make any use of such systems.
Therefore all reasonable users of such systems should be deemed t
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If an ATM accidentally dispenses you an extra $1000, it is still stealing to keep it.
How about the case where the ATM deliberately dispenses you $1000 because it's part of a new system that writes loans to anyone who asks for them? All you need is to put a widget in the machine for collateral, no ID, no ATM card or anything.
The ATM should have required $1200 in collateral to borrow $1k, but for some reason it was designed to only require $100.
And someone chose the option to borrow $1000 from the mac
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If an ATM accidentally dispenses you an extra $1000, it is still stealing to keep it.
How about the case where the ATM deliberately dispenses you $1000 because it's part of a new system that writes loans to anyone who asks for them?
I've never applied for a loan from an ATM machine - how does that work?
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I've never applied for a loan from an ATM machine - how does that work?
ATMs you see every day don't have this. The article is about crypto.
Although you can swipe a credit card at the ATM and enter the Debit PIN number for a cash advance; That's a little bit different, since Credit card companies secure a guarantee from you (They have you identify who you are to open an account, and you sign a note promising personally to repay them), and by design the DeFi networks don't even get the name or id of a pe
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I've never applied for a loan from an ATM machine
An automated teller machine machine?
Yes, I'm going to be that guy.
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Yes, the one with the LCD display.
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Re:Another Legal Case Of Dubious Meritd (Score:2)
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And this is what happens when an abbreviation is used by people not knowing what the abbreviation means( the geberal public, the non tech press and all of pr/advertising) , ah thet new LCD thing.. what does that do? Oh it displays stuff and technobabble ... ahh an LCD display. If you tell the avarage person on the street that theyare actually saying liquid crystal display display, the would probably either call you a nerd or sat " yea that sounds silly but what shal I call it then, liquid crystal display is a bit of a mouth full. " LC display might work, but it doesn't roll ooff te tounge like LCD put LCD tells the uninitiated nothing. It kind of grinds my gears too, i don't like unnecessary redundancy, but then again the redundancy we see isn't thete for >80% of the population so it's a battle we can't win. Same with ATM machine, for most people it wight as well be called the $techbabble macine I use to get cash and maybe do other banking stuff. I bet quite a few people have no idea the person behind the countercat a bank is, or at least was called a teller, so wrg is an automated teller machine the tla does not make any semce to them, and theybare bombared with them evrywere so it just fades into noise
Is your post some new postmodern version of Lorem Ipsom?
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(WYTV) – Puzzle maker, writer and publisher Stanley Newman coined an expression in “New Scientist” in 2001 for people who like to add extra words at the end of a common acronym, making the phrase redundant. He called it RAS Syndrome, which stands for Repetitive Acronym Syndrome Syndrome.
Here are some other examples of redundant acronyms:
PIN number (Personal Identification Number number) LCD display (Liquid Crystal Display display) PDF format (Portable Document Format format) SAT test (Scholastic Aptitude Test test) VIN number (Vehicle Identification Number number) UPC code (Universal Product Code code) ATM machine (Automatic Teller Machine machine) AC current/DC current (Alternating Current current/Direct Current current)
I wonder how much of this is based on there being multiple possibilities for an initialism, and since the sub-thread has taken a pedantic turn, we wanr to be correct - they are initialisms other than the PIN.
If a person says PIN, are they referring to a Personal Identification Number, or a physical pin, or even how when a person competes in some contest, they are going for a pin as in a ribbon. Or wrestling, when winning is a pin of your opponent. Context can help, but the PIN is usually a series of num
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That's not really applicable to this case. But the problem with your example is that the laws are inconsistent depending on the medium. For example, if you receive something in the mail that you did not ask for it's yours to do with as you please and you owe no one anything... not a return, not a payment... nothing. Of course, if that something is a brick of cocaine then there are other legalities. But you'd still owe the sender not a damn thing. There used to be scams where people would send, or claim
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Queue people figuring out how to provoke the ATM error and claiming "It just happened!"
OTOH, if the bank started demanding interest payments of the excess the ATM spit out, they might start getting treated like the old mail-order fraudsters.
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"In most jurisdictions, if you receive items that you didn't order, it is not legal to keep them without informing the sender. Legally, unordered merchandise sent to you is considered a gift, and you are under no obligation to pay for or return it. However, it's typically considered good practice and ethical to inform the sender of the mistake and make arrangements for returning the items
"Items you didn't order" = "unordered merchandise".
The first sentence says it is not legal without informing the sender, but the second says it is legally considered a gift, with no obligations.
While the third sentence says it'd be nice to inform the sender, you don't have to.
Quite the conundrum there.
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If an ATM accidentally dispenses you an extra $1000, it is still stealing to keep it.
Yes, but that is covered by banking law and the TOS you signed when you opened your bank account.
In the crypto case, the only TOS is the code, and the code said he could do it.
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I'm sure you will find theft in your local "Criminal Code" or equivalent.
Exploiting software vulnerabilities is perhaps an interesting place to consider parallels. Laws about exploiting them vary, but in a lot of the examples I have looked at over the years the interpretation tends to land somewhere between illegal being "using a software vulnerability to make a computer do something that the system owner was trying to stop you from doing" (somewhat explicit) to "using a software vulnerability to make a com
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but if I drop 1000$ on the ground im shit out of luck ... funny how its 2 sets of rules
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Only due to it being hard to catch whoever stole the $1000 you dropped on the ground, with part of the hard being proofing it was your $1000 and it was dropped accidentally.
Find a thousand bucks and turn it into the police, if someone can claim it, it's theirs, if no one claims it, you get it. For loose bills, it is hard to proof it was yours, if it was in your wallet, an envelope or such, easier to proof.
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if you drop 1000$ on the ground you watch who picks it up and the person who takes it knows it belongs to you and doesn't belong to them, then you're not out of luck .. it's not really a different set of rules. It's unreasonable to expect people to be able to locate a person who left 1000 sitting in the middle of the street who is nowhere to be found, and it's nearly impossible to prove the 1000 another person has is yours after the fact. On the other side, ATMs have multiple layers of logging, computer and
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So, he's not guilty?
Let's see: he had shares/cryotocoins, manipulated the value, the "borrowed" against the massively inflated value. Exactly where should the lender have stopped him?
Crypto: it's all a scam in the first place.
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So, he's not guilty?
Let's see: he had shares/cryotocoins, manipulated the value, the "borrowed" against the massively inflated value. Exactly where should the lender have stopped him?
Crypto: it's all a scam in the first place.
And we see how subprime lending, dot.com, Ponzi, bitcoin and all the other scams work. There are always skeeves that will come up with tricks that extract other people's money, and idjits that line up and scream "TAKE MY MONEY".
Re:Another Legal Case Of Dubious Merit (Score:5, Interesting)
If a trader is forbidden by law from borrowing against the value of their position(s), then why was the loan permitted?
The law does not forbid borrowing against the value of positions. The Law forbids borrowing Deceptively when the elements of fraud exist [cornell.edu] - laws vary and can include some things that don't satisfy all 9 elements required for common law fraud. That is: It is Fraud to borrow money and enter into a contract to repay with an Intention to Not repay -- by employing any kind of device or scheme (Also known as, a fraudulent scheme) to keep the money instead of repaying the money you borrowed.
Deploying a "hack", or exploiting a backdoor or weakness in code is a possible kind of fraudulent device or scheme. For Example, certainly if you exploited a bug in your bank's accounting software to edit your account balance, and then withdraw the money from an ATM: that would be a type of fraud. It's also fraud to deliberately write a series of checks that pay to different merchants more than your account balance. It does not matter that the merchants have a "weakness", and therefore accept the document you signed for payment, it would still be fraud.
You have a deposit agreement with your bank -- People aren't entitled to take and keep more money than your agreement; deliberately deceiving them into giving you more would be fraud. DeFi and Blockchain's code-based transaction system is very interesting, but keep in mind the software code does not have the force of law, nor override criminal laws.
The exact mechanism of the fraud is Not important - Any kind of scheme where you borrow $10 Million or whatever, with a promise to repay that money, and your deliberate intention is a scheme to make out with that money - Will likely be a crime.
So the true question then becomes... What is the nature of the crypto transaction.
Depending on the transaction; how that money was borrowed.. There might be legal arguments the borrower has that it is Not a loan, And they never made representations nor enter into a Legal contract.
However, It's likely a weak argument. In that the charge of manipulating futures contracts will likely be tough for them to beat providing they had a direct contact or client relationship with an exchange they borrowed from; Which I'm guessing they probably did, otherwise their identity would likely be unknown?
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That is: It is Fraud to borrow money and enter into a contract to repay with an Intention to Not repay
So, its not fraud if you do repay?
Someone get Letitia James on the phone. Quick.
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So, its not fraud if you do repay?
It's not a fraud against the lender Even if you just Intend to repay. You can even fail to Repay, and it's not fraud if you intended to; Fraud requires a deliberate scheme to deceive that causes actual damages. Of course, your intentions would be decided by the court -- based on a preponderance of the evidence, in the civil trial; not by what you claim you intended or didn't intend to do.
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I think it is just a different kind of fraud to claim to have assets you don't have or knowingly or negligently overstate the value
That's really just the same thing. Costing the borrower in terms of interest the borrower would have to pay otherwise, Or obtaining a loan that would not be written at the expense of the lender taking additional risk.
Anyway; It's not borrowing or making false statements that gets them criminal allegations for this case -- it is the alleged fraudulent scheme to manipulate t
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That is: It is Fraud to borrow money and enter into a contract to repay with an Intention to Not repay
So, its not fraud if you do repay?
Someone get Letitia James on the phone. Quick.
You missed the more general explanation, which was in the sentence before the one you quoted:
So, lying to inflate the value of your property in order to get more favorable terms from lenders may be fraud, and lying to deflate the value of your property to pay less in taxes may be tax fraud. Also, lying about the nature of hush money payments may be criminal fraud, and perhaps criminal election interference if you're doing it in order to g
Re: Another Legal Case Of Dubious Merit (Score:2)
First itâ(TM)s fraud if you intend to repay but you know you canâ(TM)t. Second, loans come with different interest rates depending on the risk the bank is taking. Whether you repay or not. So if you misrepresent the risk and therefore get a lower interest rate, itâ(TM)s fraud even if you repay.
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Creating an "innovative" computerized trading system that is indifferent to securities and banking regulation as well as established concepts (like custody) designed to avoid errors. What could go wrong?
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If a trader is forbidden by law from borrowing against the value of their position(s), then why was the loan permitted? That sounds like the lender broke the law here, not the borrower.
Or is this case another example of the law not keeping up the reality of the world around it?
In other words, if it's not specifically prohibited in the law, how is it illegal? Illegal through "legal hoop jumping" and "word twisting" perhaps?
Remember, Ponzi schemes are not illegal either. They just legally exploit a weakness in the minds of those who fall for them. Fully legal.
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https://en.wikipedia.org/wiki/... [wikipedia.org]
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By definition a Ponzi scheme employs deception to rationalize buy-in: "this type of scheme misleads investors by either falsely suggesting that profits are derived from legitimate business activities (whereas the business activities are non-existent), or by exaggerating the extent and profitability of the legitimate business activities, leveraging new investments to fabricate or supplement these profits."
https://en.wikipedia.org/wiki/... [wikipedia.org]
There is no such thing as an exact analogy. Let my dispense with it.
He claims that - and FTA: Eisenberg, a self-described "applied game theorist," claims his actions weren't theft at all. Rather, he says, he legally exploited a weakness in the decentralized finance application.
IIT isn't necessarily about legal vs illegal, though perhaps after this case, exploting a weakness in order to enrich yourself will be.
The point is that both systems, Ponzi and Bitcoin, depend on people who aren't thinking t
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The LENDER didn't borrow money, the BORROWER did.
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The loan is likely allowed.
What is not allowed is playing games to make the position appear to be more valuable than it really is and then either selling or taking a loan.
The loan is not illegal and is similar to trading on margin. Technically this would be pump and get a loan based on the pumped value.
"No your Honor..." (Score:5, Insightful)
Dumbass
well I used the self check out code that is $0.01/ (Score:2)
well I used the self check out code that is $0.01/pound on the $1.50/pound item.
Thought it was the same guy (Score:2)
Different person, same group.
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We can only hope (Score:2)
Hope that he is found not guilty. Then maybe all this crypto bullshit will finally be shown as the pyramid scheme (an money-laundering scheme) that it is.
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That is pretty much the same pattern that got us all using "Federal Reserve Notes" instead of the silver and gold back notes we had before.
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now all the banks are building crypto into their underlying systems...Literally the entire world of finance is moving to digital currencies
Citation needed.
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Nothing says lazy like flaccidly asserting those who disagree with you cannot have knowledge on the topic, like you just did right here.
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>. Also, I wonder if everyone took the time to understand how Bitcoin specifically works, would they still call it a scam.
I have and I do. I'm sure that most people who have would.
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code isn't law (Score:4, Insightful)
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Re: code isn't law (Score:2)
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The thing that gets me with "code is law" is that it is essentially the same as "they just gave me the money at the bank because I asked for it. How was I supposed to know they felt threatened by my finger in my pocket and saying don't push the silent alarm?"
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Cultist.
Financial institutions are trying to get a legal slice of the scam pie, that's all. Not one of them will ever actual use a cryptocurrency in any meaningful way, because they are fundamentally less efficient than existing solutions already implemented.
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Re:Everyone is so so lazy (Score:4, Insightful)
CBDC's are not crypto, they don't even necessarily have to be on blockchain (some can be but it is not a requirement)
Even in the name it says "Central" bank which implies a single point of control, not a distributed system. The concept of a "digital dollar" goes back to the 80's.
Banks are working on a new SWIFT system, not Bitcoin. The fact that both are "digital" is not enough of a platform to claim crypto victory upon.
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Even in the name it says "Central" bank which implies a single point of control, not a distributed system. The concept of a "digital dollar" goes back to the 80's.
It's not just that they have a single point of control, either. They are another representation of the underlying fiat currency, not a new thing at all. Which is a good thing! Modern fiat currencies are awesome. They enable the money supply to grow and shrink in step with the economy without usually experiencing either too much inflation or any deflation (deflation is really bad -- imagine if your home loan were denominated in BTC, <shudder/>), tremendously softening the boom & bust cycles that a
Hahahaha “code is law” (Score:2)
It’s always amusing when a sovereign-citizen or true-believer-anarchist runs up against the law and gets all huffy and surprised when their interpretation of the universe isn’t meekly accepted by every human o
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"Code is law" was popularized by Lawrence Lessig. It does not mean "code should be law". Like "information wants to be free" it's an observation, a statement about the nature of things. Information doesn't have a mind with which it could want to be free, but we observe that information that is meant to be unavailable to the public doesn't stay unavailable. This is because information is easily transferred and copied, so keeping it locked up is difficult. "Two can keep a secret if one of them is dead" is ano
No surer way to end crypto than "code is law" (Score:2)
Unfortunately, people already know that it's bullshit and just hard-fork blockchains when something happens that the code allows but the cabal doesn't like.
A libertarian wake-up call (Score:4, Insightful)
Now the milk is spilled, and the government (e.g. the judiciary branch of government) is tasked with sorting out the mess.
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Rules for the powerful (Score:1)
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Are you saying this market manipulating fraudster sociopath should get away with it because contracts are long?
Sociopathic != legal defense (Score:2)
"Hi your Honor and members of the jury, my defense against these charges of market manipulation and blatant fraud is my diagnosis as a sociopath. I believe that anything I do that isn't specifically prevented by a technical barrier is legal as well as ethical. I don't actually believe in ethics but my lawyer told me you people believe in ethics so I tossed it in there. I plead not guilty by virtue of being a sociopath, thank you".
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He broke the law. We already have laws against market manipulation, AC.
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Lmao wtf are you talking about? That made no sense at all. I can't even make fun of your logic or facts because I can't identify any. But, that is some really good shit you got, so pass the bong, bro, I want whatever it is you're smoking.
Code isn't Law (Score:2)
'Code Is Law' only works to the point that there may be no way for a court to directly compel 'X coins now belong to Y person' like they can for real world property. However, Code Is Law has no way of preventing a court from punishing *you*, since no blockchain can reach out and prevent the police from arresting and jailing you.