In a recent turn of events, the US Securities and Exchange Commission (SEC) has taken action against Abra, a cryptocurrency lending firm, for its failure to register its crypto asset lending product, Abra Earn. This move comes after Abra’s owner, Plutus Lending LLC, was accused of operating as an unregistered investment company. The SEC’s Associate Director of the Division of Enforcement, Stacy Bogert, highlighted that Abra had sold nearly half a billion dollars of securities to US investors without adhering to registration laws meant to protect investors.
Abra’s Controversial Practices
Abra introduced Abra Earn in the US in July 2020, allowing investors to lend their crypto assets in exchange for variable interest rates. The program quickly amassed approximately $600 million in assets, with the majority coming from US investors. The SEC alleges that Abra marketed the product as a way for investors to earn interest effortlessly while using their assets to generate income. However, the SEC contends that Abra offered and sold Abra Earn as a security without meeting the necessary registration requirements. Moreover, the SEC claims that Abra functioned 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.
Abra has reached a settlement with the SEC, neither admitting nor denying the allegations. The settlement includes an injunction against violating registration provisions and the imposition of civil penalties to be determined by the court. Additionally, on June 15, 2023, the Texas State Securities Board issued an emergency cease and desist order against Abra, accusing the firm of misleading investors by presenting itself as a “crypto bank” without the necessary regulatory approvals. The Texas regulator also uncovered financial instability within Abra and its CEO, William “Bill” Barhydt, during its investigation.
Following the legal actions taken against Abra, the firm entered into agreements with 25 US states to compensate customers whose withdrawals were frozen, totaling $82 million. In return, Abra evaded monetary penalties that could have incurred significant costs. Furthermore, Abra committed to halting the acceptance of crypto allocations from US customers as of June 15, 2023, and pledged to refund US customer balances. This series of events underscores the importance of compliance and transparency in the cryptocurrency industry, serving as a cautionary tale for companies operating in this rapidly evolving landscape.