SEC Charges Abra for Failing to Register $600 Million Crypto Lending Program

The Securities and Exchange Commission (SEC) has charged Abra, a crypto asset platform operated by Plutus Lending LLC, for allegedly failing to register its retail crypto lending program, Abra Earn. The SEC’s recent charges also include allegations that Abra operated as an unregistered investment company, raising concerns about investor protection and regulatory compliance.

Claims of Unregistered Investment Company

According to a statement by the SEC, Abra launched Abra Earn, a program allowing US investors to lend their crypto assets in exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term for variable interest rates, in July 2020. This program amassed significant traction, with $600 million in assets at its peak, nearly $500 million of which came from US investors.

The SEC alleged that Abra marketed the program with the promise of “auto-magically” earning interest while exercising discretion over how to generate income from these assets. The SEC contends that Abra Earn constituted a security, which should have been registered according to federal securities laws.

According to the SEC, Abra held more than 40% of its total assets, excluding cash, in investment securities, including crypto assets loans to institutional borrowers. This threshold necessitates registration under the Investment Company Act of 1940, which Abra allegedly ignored.

By June 2023, Abra had begun winding down its Abra Earn program, instructing US-based customers to withdraw their crypto assets. Despite this, the SEC proceeded with its charges, citing violations of the Securities Act of 1933 and the Investment Company Act of 1940.

Civil Penalties

To settle these charges, Abra has reportedly agreed to an injunction prohibiting further violations of the registration provisions outlined by the SEC. The company will also pay civil penalties, the amounts of which are to be determined by the court. Abra did not admit or deny the SEC’s allegations as part of the settlement Settlement Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2 Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2 Read this Term.

Commenting about the matter, a spokesperson from Abra said: “Plutus Lending LLC (“PLL”), a subsidiary of Abra, has agreed to settle an action brought by the SEC regarding Abra Earn, a service that was discontinued in 2022. Without admission of wrongdoing, PLL agrees to continue to comply with securities laws.”

“No consumers were harmed at all by the settlement or wind down of Abra Earn. All assets for US Earn customers, including accrued interest, were transferred to their Abra Trade accounts in 2023. Abra continues to operate in the USA via Abra Capital Management, an SEC-registered investment advisor.”

The SEC’s Office of Investor Education and Advocacy has previously issued bulletins warning investors about the risks associated with crypto asset interest-bearing accounts, highlighting the importance of due diligence in this volatile market.

In June, Abra and its CEO, William Barhydt, settled with 25 state financial regulators in the US for operating a crypto business without the required approvals. The platform was accused of offering crypto trading and investing services without any license. The settlement ordered Abra to return over $82.1 million in crypto to US customers in each of the settling states and cease crypto activities in the region.