Abra, a crypto lending firm, recently found itself in hot water with the US Securities and Exchange Commission (SEC) for failing to register its crypto asset lending product, Abra Earn. Despite offering the product in the US and attracting approximately $600 million in assets, the majority of which came from US investors, Abra did not comply with the registration laws designed to protect investors. The SEC alleges that Abra marketed the product as a way for investors to earn interest “auto-magically,” using investors’ assets to generate income and fund interest payments. The SEC has filed settled charges against both Abra and Plutus Lending LLC, Abra’s owner, with Stacy Bogert, Associate Director of the SEC’s Division of Enforcement, emphasizing the importance of registration laws in ensuring investors have sufficient and accurate information before investing.
Operating as an Unregistered Investment Company
The complaint filed by the SEC also accuses Abra of operating as an unregistered investment company for at least two years, holding a significant portion of its assets in investment securities, including crypto asset loans to institutional borrowers. This raises concerns about the lack of oversight and regulatory compliance in Abra’s operations. The SEC’s allegations have prompted Abra 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.
State Regulatory Actions
In addition to facing charges from the SEC, Abra also encountered regulatory challenges from the Texas State Securities Board. The emergency cease and desist order issued by the Texas regulator accused Abra of fraudulently presenting itself as a “crypto bank” without the necessary charter and insurance. The regulator’s investigation revealed potential insolvency within Abra, raising further red flags about the firm’s financial stability. Furthermore, Abra reached a settlement with 25 US states to repay $82 million to customers who experienced frozen withdrawals, avoiding substantial monetary penalties in the process. As part of the settlement, Abra agreed to cease accepting crypto allocations from US customers and refund their balances, indicating a shift in its operational approach.
The SEC’s charges against Abra shed light on the importance of regulatory compliance in the crypto industry. Abra’s violation of registration laws and unregistered investment activities underscore the need for stricter oversight and transparency in the sector. The regulatory actions taken by both the SEC and state authorities serve as a cautionary tale for other crypto firms operating in a regulatory gray area. As the crypto market continues to evolve, regulatory scrutiny and enforcement are crucial in protecting investors and maintaining the integrity of the financial system.
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