Abra, a crypto lending firm, recently faced settled charges from the US Securities and Exchange Commission for failing to register its crypto asset lending product, Abra Earn. Adding to the trouble, the SEC also filed charges against Plutus Lending LLC, the owner of Abra, for operating as an unregistered investment company. Stacy Bogert, Associate Director of the SEC’s Division of Enforcement, highlighted the severity of the situation, emphasizing that Abra sold nearly half a billion dollars of securities to US investors without adhering to registration laws that aim to protect investors and provide them with accurate information for decision-making.
Abra launched its Abra Earn program in the US in mid-2020, attracting investors with the promise of lending crypto assets for variable interest rates. The program amassed close to $600 million in assets, with the majority coming from US investors. The SEC alleged that Abra marketed the product as a way to earn interest effortlessly, utilizing investors’ assets to generate income and fund interest payments. Despite these claims, the SEC asserts that Abra offered and sold Abra Earn as a security without meeting SEC registration requirements. Furthermore, the regulator accused Abra of operating as an unregistered investment company for over two years, with a substantial portion of its assets tied up in investment securities, including crypto asset loans to institutional borrowers.
Abra chose to settle the SEC charges, refraining from admitting or denying the allegations. The settlement terms consist of an injunction against future registration violations and await court-determined civil penalties. Additionally, on June 15, 2023, the Texas State Securities Board issued an emergency cease and desist order against Abra, alleging the firm of deceiving customers by presenting itself as a “crypto bank” without proper charter and deposit insurance. The board also revealed financial instability within Abra and its CEO during an investigation earlier that year.
Amidst mounting legal pressure, Abra reached settlements with 25 US states to reimburse $82 million to customers affected by frozen withdrawals. In a strategic move, Abra agreed to cease receiving crypto allocations from US customers and committed to refunding customer balances to avoid hefty monetary penalties per jurisdiction.
Abra’s rapid rise in the crypto lending market was marred by regulatory missteps and legal confrontations, underscoring the importance of compliance and transparency in the ever-evolving landscape of digital assets.
