Mango Labs has filed suit against John Kramer and Maximilian Schneider alleging that they embezzled $10 million from the Mango decentralized autonomous organization (DAO).

Kramer and Schneider occupy positions of trust in the DAO and are accused of conspiring to profit illicitly while they bought bankrupt FTX’s holdings of the DAO’s MNGO governance tokens on behalf of the DAO.   

Unknown persons are accused of aiding and abetting Kramer and Schneider. If their identities remain unknown, they will be served papers via their crypto wallets, Mango Labs promised in its complaint filed in the United States District Court of Puerto Rico.

A reasonable proposal fraudulently enacted

According to the suit, Kramer and Schneider claimed they would buy FTX’s holdings of MNGO for the DAO at a favorable price. The tokens would be transferred to the DAO and the purchase would also prevent bad actors from obtaining them, they reasoned.

Instead, the duo bought MNGO secretly on or around April 1, 2024, and deposited it into the DAO treasury anonymously. Then Kramer proposed that DAO members who participate in governance sell their MNGO to the DAO at an inflated price:

“On April 30, 2024, the Mango DAO was thereby tricked into paying for over 78 million MNGO tokens for approximately $2.5 million pursuant to the Proposal.” 

That proposal passed, with the vote supported by the 330 million MNGO they had bought. Mango DAO then purchased 72.8 million MNGO tokens for $2,500,000. The deceit was easily detected, however. According to the suit:

“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.” 

“Yet every time that Mango Labs has confronted Defendants about their fraud and breach of duty, they have doubled down and attempted to pressure Mango Labs to stop,” it continued. 

Discussion on the Mango DAO Discord reproduced in the Mango DAO suit. Source: Pacer

A DAO that’s been through the wringer

The suit charges Kramer and Schneider with breach of fiduciary duty, violation of the Puerto Rico civil code article on damages, fraud/misrepresentation and unjust enrichment. It demands monetary damages, “exemplary and punitive damages,” plus restitution and disgorgement of wrongfully obtained funds, including interest and fees.

Mango Labs suit against Kramer and Schneider. Source: Pacer

The defendants carried out their alleged wrongdoing simultaneously with the trial of Avraham Eisenberg for exploiting the DAO for $110 million. Eisenberg was found guilty of wire fraud, commodities fraud and commodities manipulation on April 18.

Since then, Mango Markets, the decentralized exchange run by Mango DAO, has become the focus of an “ongoing and nonpublic” investigation by the US Commodity Futures Trading Commission.

On Sept. 27, Mango DAO settled charges relating to unregistered securities with the US Securities and Exchange Commission. It agreed to pay the SEC $700,000 and destroy all MNGO tokens.

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