Mango Labs Sues DAO Insiders for Alleged $10M Fraud

The lawsuit accuses DAO members of using deception to profit while buying up MNGO tokens, adding to the DAO’s ongoing legal troubles.

Mango Labs has initiated a lawsuit against two of its own, John Kramer and Maximilian Schneider, alleging that they orchestrated a $10 million embezzlement scheme within the Mango decentralized autonomous organization (DAO). Filed in the U.S. District Court of Puerto Rico, the complaint claims that Kramer and Schneider exploited their positions of trust to make illicit profits while managing the purchase of MNGO governance tokens from the bankrupt FTX exchange.

The lawsuit further accuses unidentified accomplices of aiding Kramer and Schneider in their scheme. Mango Labs has made it clear that if these unknown parties remain anonymous, it will deliver legal notices through their crypto wallets, according to the court filings.

The alleged plot revolves around a proposal put forth by Kramer and Schneider to acquire FTX's holdings of MNGO tokens on behalf of the DAO at a favorable price. They argued that this move would safeguard the DAO’s interests by transferring the tokens to its treasury and preventing bad actors from gaining control. However, the reality appeared different. The suit claims that the duo secretly bought the MNGO tokens around April 1, 2024, and anonymously deposited them into the DAO’s treasury.

Subsequently, on April 30, Kramer proposed that DAO members sell their MNGO back to the DAO at an inflated price. This proposal passed, buoyed by 330 million MNGO votes—coincidentally, the same tokens that Kramer and Schneider had acquired in secret. This led to Mango DAO purchasing 72.8 million MNGO tokens for around $2.5 million, benefiting the accused. According to the lawsuit, the deception soon became evident.

“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 complaint notes. It further alleges that instead of cooperating, Kramer and Schneider “doubled down” on their actions, pressuring Mango Labs to drop the matter.

The accusations against the two add to a turbulent period for Mango DAO. The legal action charges them with breaches of fiduciary duty, fraud, misrepresentation, and unjust enrichment, seeking monetary damages, including punitive measures and restitution of funds with interest.

This internal conflict coincides with the fallout from another high-profile legal battle involving Mango DAO. Around the same time, Avraham Eisenberg stood trial for exploiting Mango Markets, the DAO’s decentralized exchange, for $110 million. Eisenberg was found guilty of wire fraud, commodities fraud, and manipulation on April 18, adding further stress to the organization.

Additionally, Mango Markets is under an “ongoing and nonpublic” investigation by the U.S. Commodity Futures Trading Commission (CFTC). On September 27, the DAO settled with the U.S. Securities and Exchange Commission (SEC) over allegations of unregistered securities. As part of the settlement, the DAO agreed to pay $700,000 and destroy all remaining MNGO tokens.

The lawsuit against Kramer and Schneider presents yet another hurdle for Mango DAO as it grapples with internal conflicts, regulatory scrutiny, and legal challenges. The outcome of this latest case could have significant implications for the DAO’s governance, transparency, and stability. As the organization navigates these turbulent waters, the legal battles serve as a stark reminder of the complexities facing decentralized organizations in maintaining trust among their members.

photo source / Blockonome