Judicial Interpretation Of Smart Contract Manipulations
1. B2C2 Ltd v. Quoine Pte Ltd (Singapore, 2020)
Facts: B2C2, a crypto trading firm, used an automated algorithm to trade Ethereum (ETH) for Bitcoin (BTC) on the Quoine exchange. A technical glitch caused the system to execute seven trades at extremely unfavorable prices — about 10 BTC per 1 ETH, far from the market rate. Quoine reversed the trades after noticing the error.
Legal Issue: Can a unilateral reversal of trades executed via smart contract/automated algorithms be justified? Is a contract executed by software binding?
Decision: The Singapore International Commercial Court ruled that trades executed by algorithmic systems are legally binding. Quoine’s reversal was a breach of contract, though a breach-of-trust claim was later overturned.
Significance: Established that smart contracts or automated trades can be binding, even if no human intervention occurred, emphasizing that “code is law” is recognized, but equity and mistake doctrines may apply only narrowly.
2. Mango Markets Exploit / U.S. v. Avraham Eisenberg (2022–2025)
Facts: Avraham Eisenberg exploited a vulnerability in Mango Markets’ DeFi platform. By manipulating token prices and borrowing against inflated collateral, he withdrew over $110 million.
Legal Issue: Does exploiting a smart contract vulnerability constitute fraud or market manipulation under U.S. law?
Decision: Initially, Eisenberg was found guilty of fraud and manipulation. Later, parts of the conviction were overturned due to insufficient evidence that his actions involved materially false representations.
Significance: First major criminal case linking smart contract exploits to traditional fraud laws. Courts showed willingness to treat DeFi platforms as subject to conventional financial and criminal regulation.
3. Van Loon v. U.S. Department of the Treasury (U.S., 2023)
Facts: Case arose from sanctions against Tornado Cash, a protocol using immutable smart contracts to enable private crypto transactions. The question was whether smart contracts can be treated as “property” under U.S. law.
Legal Issue: Are immutable smart contracts legally ownable property that can be seized or frozen?
Decision: Court ruled that smart contracts without an identifiable owner cannot be treated as property under existing legal frameworks.
Significance: Limits the “code is law” philosophy in regulatory contexts; immutable smart contracts may execute autonomously, but law may not recognize them as property.
4. EtherDelta SEC Case (U.S., 2018–2019)
Facts: EtherDelta, a decentralized exchange, allowed users to trade ERC20 tokens without registration. The SEC alleged that the founder operated an unregistered securities exchange.
Legal Issue: Can smart contract platforms that automatically execute trades be regulated as securities exchanges?
Decision: Founder agreed to pay fines and penalties without admitting or denying wrongdoing; the SEC ruled that the smart contract did not exempt the operator from compliance with securities law.
Significance: Demonstrates that automated code execution does not shield operators from regulatory obligations. Smart contracts are not outside legal oversight.
5. FTX Bankruptcy & Sam Bankman-Fried Case (U.S., 2022–2024)
Facts: FTX, a crypto exchange using smart contracts for token transfers and automated financial operations, collapsed due to misuse of customer funds.
Legal Issue: How does court interpret contracts and obligations executed via smart contracts when the operator engages in fraud?
Decision: Courts treated the smart contracts as legally binding but emphasized that operator misconduct invalidated the good-faith assumption. Bankruptcy proceedings prioritized victims’ restitution.
Significance: Reinforces that smart contracts themselves do not immunize operators from liability, especially in cases of fraud or breach of fiduciary duty.
6. DAO Hack / SEC Investigation (U.S., 2016–2017)
Facts: The Decentralized Autonomous Organization (DAO), built on Ethereum smart contracts, was hacked; $50 million in ETH was drained due to a code vulnerability.
Legal Issue: Can smart contract vulnerabilities excuse losses? Are tokens issued via smart contracts considered securities?
Decision: SEC concluded DAO tokens were securities. Investors could not claim automatic restitution through smart contract execution; regulatory frameworks still applied.
Significance: Clarified that smart contract execution does not replace securities law compliance, and code vulnerabilities don’t absolve legal liability.
7. Blockvest / SEC Case (U.S., 2018)
Facts: Blockvest marketed itself as a fully automated investment platform using smart contracts, promising returns to investors.
Legal Issue: Are promises executed via smart contracts subject to fraud and registration laws?
Decision: SEC charged the founder with fraud; court emphasized that the automated execution of the contract did not shield the operator from liability.
Significance: Courts consistently treat smart contract operations as subject to general law, including fraud, misrepresentation, and securities regulations.
✅ Key Takeaways Across These Cases
Smart contracts can form binding agreements: Courts will enforce them as long as offer, acceptance, and consideration exist (B2C2 v. Quoine, FTX).
Exploiting smart contract vulnerabilities can be illegal: Code bugs don’t provide legal immunity (Mango Markets, DAO Hack).
Regulators and courts apply traditional law to digital contracts: Securities, fraud, and market manipulation laws still apply.
Immutable code vs. equity: Courts rarely “rewrite” smart contracts; remedies are usually damages or restitution.
Ownership and control matter: Smart contracts without identifiable operators may not be treated as property (Van Loon case).
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