Market Manipulation Cases Face Challenges as Fraud Allegations are Reversed
In two recent high-profile cases, courts have overturned convictions related to fraud and market manipulation in digital assets, underscoring the importance of carefully scrutinising the defendant's conduct against accepted market norms.
First, in a case involving pre-hedging practices, the Second Circuit overturned the wire fraud conviction of Mark Johnson, a former head of foreign exchange trading. Johnson was accused of manipulating the 3 p.m. fix price for British pounds by pre-hedging, a practice that can help protect dealers against adverse price movements. However, the court ruled that pre-hedging alone does not constitute fraud or manipulation unless accompanied by improper motives or effects.
In another case, Mango Markets trader Avraham Eisenberg was charged with commodities fraud, commodities manipulation, and wire fraud. Eisenberg allegedly stole over $100 million in cryptocurrency from Mango Markets, a decentralized crypto trading platform. The court found that the government had not established a material misrepresentation for the wire fraud charge. Moreover, the court overturned the manipulation convictions based on lack of venue because the prosecution did not introduce sufficient evidence that the offenses occurred in New York.
In 2017, Johnson was indicted on 11 counts of wire fraud and one count of conspiracy to commit wire fraud. In May 2025, the district court granted Eisenberg's Rule 29 motion, overturning the jury verdict and acquitting him of the wire fraud charge and vacating his commodities fraud and commodities manipulation convictions.
Courts and regulators assess both the subjective intent and objective market impact of alleged misconduct in these cases. To establish fraud or market manipulation charges, courts require proof of a material misrepresentation, deceptive act, or manipulative device that causes or is intended to cause artificial prices or harms market integrity. The conduct must also deviate from accepted or permissible market practices, such as standard pre-hedging without malicious intent.
Regulators like the CFTC utilize existing laws such as the Commodity Exchange Act’s broad anti-fraud and anti-manipulation provisions to pursue enforcement actions in digital asset cases. For instance, cases have targeted fraudulent misrepresentations of AI trading bots tied to Bitcoin investments, demonstrating that the legal framework is flexible and technology-neutral, allowing courts to address traditional notions of fraud even in emerging digital asset markets.
In digital asset cases, strong security failures, such as compromised credentials or API keys enabling unauthorized trades, may also underpin fraud allegations if they enable illicit transfers or market manipulation.
These recent rulings highlight the evolving landscape of digital asset regulation and the need for courts and regulators to adapt their approaches to emerging technologies. As the use of digital assets continues to grow, it is likely that we will see more cases testing the boundaries of existing laws and regulations.
- Investing in digital assets requires careful consideration of accepted market practices, as demonstrated by the acquittal of Mark Johnson, who was previously accused of using pre-hedging, a common business practice in the foreign exchange market, but was found not guilty of fraud or market manipulation due to the lack of improper motives or effects.
- The importance of technology in the business world, including investing in digital assets, was evident in the Mango Markets case, where the court overturned the manipulation convictions due to lack of venue, highlighting the need for regulators like the CFTC to apply technology-neutral laws, such as the Commodity Exchange Act's anti-fraud and anti-manipulation provisions, to maintain market integrity in the face of emerging technologies.
