The SEC Settles Charges Against Abra for Unregistered Crypto Lending Product

The SEC Settles Charges Against Abra for Unregistered Crypto Lending Product

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 brought charges against Plutus Lending LLC, the owner of Abra, for operating as an unregistered investment company. Stacy Bogert, Associate Director of the SEC’s Division of Enforcement, highlighted the seriousness of the allegations by stating that Abra sold nearly half a billion dollars of securities to US investors without adhering to registration laws.

Abra introduced the Abra Earn program in the US in July 2020, allowing investors to lend crypto assets in exchange for variable interest rates. The program amassed around $600 million in assets, with a substantial portion, nearly $500 million, coming from US investors. The SEC’s complaint alleges that Abra marketed the product as a means for investors to earn interest “auto-magically” and used investors’ assets to generate income and fund interest payments. However, the SEC contends that Abra Earn was offered and sold as a security without meeting SEC registration requirements.

Moreover, the SEC asserts 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 terms of the settlement include an injunction against violating registration provisions and civil penalties to be determined by the court.

In a separate incident, the Texas State Securities Board issued an emergency cease and desist order against Abra on June 15, 2023. The state regulator accused Abra of fraudulently presenting itself as a “crypto bank” without possessing a Texas bank charter or providing Federal Deposit Insurance Corporation deposit insurance. The Texas regulator further alleged that Abra and its CEO, William “Bill” Barhydt, were financially distressed during the investigation conducted on March 31, 2023.

Shortly after the Texas regulatory action, Abra reached a settlement with 25 US states, agreeing to reimburse $82 million to customers whose withdrawals were frozen. In exchange for repayment, Abra evaded monetary penalties of $250,000 per jurisdiction. Additionally, Abra pledged to cease accepting crypto allocations from US customers as of June 15, 2023, and refund balances to US customers affected by the regulatory actions.

Regulation

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