Abra faces SEC showdown: What went behind the unregistered crypto sales?

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  • SEC also accused Abra of operating as an unregistered investment company.
  • The settlement was reached without Abra admitting to or denying the allegations.

As a seasoned crypto investor with a keen eye for regulatory developments, this latest news about Abra has left me somewhat concerned but not entirely surprised. I’ve been in this game long enough to know that regulatory compliance is an essential aspect of any investment platform, especially in the rapidly evolving world of cryptocurrencies.

More recently, the U.S. Securities and Exchange Commission (SEC) has taken action against a company called Plutus Lending LLC (also recognized as Abra). The SEC claims that Abra illegally sold digital securities in the form of their lending product without proper registration.

That being said, the SEC also accused Abra of operating as an unregistered investment company.

How it all started

In July 2020, the matter came up when Abra launched its Abra Earn service within the U.S. This new feature enabled investors to put their cryptocurrency holdings on deposit, with the expectation of receiving fluctuating returns.

Ever since its introduction, Abra Earn has garnered considerable attention due to Abra’s aggressive marketing efforts, positioning it as an attractive high-yield investment option.

At its highest point, the program controlled nearly $600 million worth of assets, about half of which came from American investors.

Elaborating on the same, the press release published on 26th August by the US SEC noted, 

As an analyst, I’d rephrase the statement as follows: “According to the complaint, I found that Abra advertised Abra Earn as a platform where investors could automatically earn returns on their cryptocurrencies. Furthermore, it appears that Abra has been utilizing investors’ crypto assets in diverse methods to produce income for itself and cover interest payments.”

Beginning in June 2023, Abra initiated a process of phasing out the Abra Earn program, urging its American users to remove their cryptocurrency holdings from the platform. This move suggests a significant change in Abra’s business operations and the investment opportunities it provides for its clients.

Execs weigh in…

Speaking about the matter, Stacy Bogert, an Associate Director within the Securities and Exchange Commission’s (SEC) Division of Enforcement, stated her viewpoint.

“It’s claimed that Abra sold approximately half a billion dollars worth of securities to American investors, yet failed to adhere to the registration laws intended to provide investors with adequate, truthful data to make well-informed investment decisions prior to their investments.”

Bogert further added, 

“To compound the potential harm to investors, Abra allegedly sold its own securities while skirting applicable Investment Company Act provisions that provide a number of important protections to investors, including minimizing conflicts of interest. This matter reflects yet again that, in conducting enforcement investigations, we are governed by economic realities, not cosmetic labels.”

As a researcher, I would like to add that during a period of at least two years, the SEC has accused Abra of functioning as an unregistered investment company. This claim stems from Abra’s actions in issuing securities and investing over 40% (excluding cash) of its assets into investment securities, such as crypto asset loans extended to institutional clients.

Given ongoing legal challenges, it’s no surprise that Abra chose to resolve the matter by accepting a court order prohibiting any future breaches of these specific regulations.

Although Abra has consented to pay civil penalties, the specific amount will be set by the court.

The settlement was reached without Abra admitting to or denying the allegations, indicating a resolution without an acknowledgment of fault.

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2024-08-28 09:12