Recently, the US Securities and Exchange Commission (SEC) filed settled charges against crypto lending firm Abra for failing to register its crypto asset lending product, Abra Earn. This failure to comply with registration laws led to Abra selling nearly half a billion dollars of securities to US investors without providing them with sufficient and accurate information. As a result, the SEC also filed charges against Plutus Lending LLC, the owner of Abra, for operating as an unregistered investment company.
Abra launched the Abra Earn program in the US in July 2020, allowing investors to lend crypto assets in exchange for variable interest rates. Despite marketing the program as a way for investors to earn interest “auto-magically,” Abra failed to qualify for an SEC registration exemption, ultimately offering and selling Abra Earn as a security. According to the SEC, Abra operated 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.
On June 15, 2023, the Texas State Securities Board issued an emergency cease and desist order against Abra, accusing the crypto firm of fraud. The regulator alleged that Abra misrepresented itself as a “crypto bank” without the necessary Texas bank charter and Federal Deposit Insurance Corporation deposit insurance. Additionally, the Texas regulator found Abra and its CEO to be insolvent or nearly insolvent during its investigation. Subsequently, Abra settled with 25 US states, agreeing to repay $82 million to customers whose withdrawals were frozen. In return, Abra avoided hefty monetary penalties and committed to ceasing the acceptance of crypto allocations from US customers, as well as refunding US customer balances.
The downfall of Abra serves as a cautionary tale for companies operating in the crypto space. It highlights the importance of regulatory compliance and the consequences of failing to adhere to registration laws. As the crypto industry continues to evolve and attract increased scrutiny from regulators, companies must prioritize transparency and legal compliance to maintain the trust of investors and regulators alike. Abra’s regulatory troubles underscore the risks associated with operating in an industry that lacks clear regulatory guidance and emphasizes the need for companies to proactively engage with regulators to ensure compliance with existing laws and regulations.
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