The US Securities and Exchange Commission (SEC) recently filed settled charges against Abra, a crypto lending firm, for failing to register its crypto asset lending product, Abra Earn. The SEC also filed settled charges against Plutus Lending LLC, Abra’s owner, for operating as an unregistered investment company. Stacy Bogert, Associate Director of the SEC’s Division of Enforcement, highlighted the issue, stating that Abra sold nearly half a billion dollars of securities to US investors without complying with registration laws. This lack of compliance raises concerns about providing investors with sufficient and accurate information to make informed decisions before investing.
Abra began offering Abra Earn in the US in July 2020, allowing investors to lend crypto assets for variable interest rates. The program amassed approximately $600 million in assets, with nearly $500 million coming from US investors. The SEC alleges that Abra marketed the product as a way for investors to earn interest ‘auto-magically’, utilizing investors’ assets to generate income and fund interest payments. The complaint states that Abra Earn was offered and sold as a security without obtaining an SEC registration exemption. Additionally, the SEC claims that Abra operated as an unregistered investment company for at least two years, holding over 40% of its total assets in investment securities, including crypto asset loans to institutional borrowers.
Abra has agreed to settle the charges without admitting or denying the allegations. The settlement includes an injunction against violating registration provisions and civil penalties to be determined by the court. In another legal blow to the company, the Texas State Securities Board issued an emergency cease and desist order against Abra on June 15, 2023. The regulator accused Abra of fraudulently presenting itself as a ‘crypto bank’ without the necessary Texas bank charter and Federal Deposit Insurance Corporation deposit insurance. During its investigation, the Texas regulator found that Abra and its CEO, William ‘Bill’ Barhydt, were either insolvent or nearly insolvent as of March 31, 2023.
Following the legal actions, Abra settled with 25 US states to repay $82 million to customers whose withdrawals were frozen. In exchange, the company avoided monetary penalties of $250,000 per jurisdiction. As part of the settlement, Abra agreed to stop accepting crypto allocations from US customers as of June 15, 2023, and refund US customer balances.
The legal issues faced by Abra serve as a cautionary tale for companies operating in the cryptocurrency space. Compliance with regulatory requirements is essential to protect investors and ensure the integrity of the financial system. It is crucial for companies to be transparent and accountable in their dealings to avoid facing similar legal repercussions in the future.
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