SEC Settles with Abra Over Unregistered Crypto Securities Sales

Highlights:

• Abra settled with the SEC for selling unregistered crypto securities and operating as an unregistered investment company.
• Abra’s “Earn” program managed $600 million in assets, $500 million from U.S. investors.
• The SEC’s charges against Abra highlight the ongoing regulatory scrutiny of major crypto platforms.

The U.S. Securities and Exchange Commission (SEC) has announced a settlement with cryptocurrency investment firm Abra, also known as Plutus Lending LLC. Abra allegedly conducted unregistered offers and sales of crypto asset securities and operated as an unregistered investment company. This agreement addresses violations related to Abra’s lending product, Abra Earn, which the SEC states should have been registered as a security.

We filed settled charges against Plutus Lending LLC, which does business as Abra, for failing to register the offers & sales of its retail crypto asset lending product, Abra Earn. The SEC also charged Abra w/ operating as an unregistered investment co. https://t.co/wbrpYFQyrZ pic.twitter.com/zG4Argki2H

— U.S. Securities and Exchange Commission (@SECGov) August 26, 2024

Abra introduced its Abra Earn program in July 2020, allowing U.S. investors to earn interest on their crypto assets. At its peak, the program managed approximately $600 million in assets, with nearly $500 million sourced from U.S. customers. The SEC’s complaint alleges that Abra misled investors by marketing Abra Earn as a simple way to earn interest on crypto assets while utilizing them to generate income.

The SEC also accused Abra of functioning as an unregistered investment company. The complaint highlighted that more than 40% of Abra’s total assets were invested in securities for at least two years. Moreover, this included crypto assets loans to institutional borrowers. This activity allegedly violated the Investment Company Act of 1940, which mandates registration and specific compliance measures for companies involved in significant securities investments.

Regulatory Scrutiny and Settlement

In June 2023, Abra began winding down the Abra Earn program, advising its U.S. customers to withdraw their assets. This move came amid increasing regulatory scrutiny, including an enforcement action by the Texas State Securities Board. The Texas regulator accused Abra and its CEO, William “Bill” Barhydt, of committing securities fraud by promoting Abra as a “crypto bank” without the necessary state and federal licenses. During the investigation, it was revealed that Abra and Barhydt were “collectively insolvent or nearly insolvent.”

As part of its settlement with the SEC, Abra agreed to cease any violations of U.S. securities laws and consented to an injunction prohibiting future infractions. The company is also subject to civil penalties, which the court will determine. Notably, Abra did not admit or deny the SEC’s allegations.

This is not the first time Abra has faced regulatory action. In June, the company settled with 25 U.S. states over similar allegations of operating without proper licenses. As part of that settlement, Abra agreed to reimburse customers up to $82.1 million and cease accepting crypto deposits from U.S. customers.

SEC’s Ongoing Enforcement in the Crypto Industry

The SEC’s action against Abra underscores its broader effort to enforce securities laws in the rapidly evolving cryptocurrency industry. According to Stacy Bogert, Associate Director of the SEC’s Division of Enforcement, “Abra sold nearly half a billion dollars of securities to U.S. investors without complying with registration laws designed to ensure that investors have sufficient, accurate information to make informed decisions before they invest.” Bogert emphasized that the SEC is guided by “economic realities, not cosmetic labels” in its enforcement efforts.

Abra’s settlement with the SEC is part of a larger pattern of regulatory scrutiny in the crypto sector. Recently, the SEC has taken action against other major crypto firms. The regulators accused Binance, Coinbase, and BlockFi of similar violations related to unregistered securities offerings.