The U.S. Securities and Exchange Commission (SEC) said that cryptocurrency service provider Abra, also known as Plutus Lending, has agreed to pay civil penalties as part of the settlement with the SEC charges related to the unregistered offers and sales of its lending product, Abra Earn.
Abra has agreed to settle the charges without admitting or denying the allegations.
The exact amount will be determined by the court, the SEC stated in an announcement on August 26, adding that Abra consented to the settlement without admitting or denying the allegations. The SEC also noted that the company would face an injunction to prevent future securities law violations.
Stacy Bogert, SEC enforcement associate director, commented:
“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.”
Complex Issues
Founded in 2014, Abra is a cryptocurrency services firm that offers a variety of products for both individual and institutional investors, such as borrowing, lending, staking, and yield.
Abra started offering Abra Earn in 2020 as one of its core products. At its peak, the program, which allowed investors to deposit their crypto assets in exchange for interest payments, had approximately $600 million in assets, with nearly $500 million from U.S. investors.
The SEC alleged that Abra failed to register the offers and sales of Abra Earn for at least two years. As noted, Abra held more than 40% of its total assets in investment securities, including its loans of crypto assets to institutional borrowers.
The SEC also claimed that Abra marketed Abra Earn as a way for investors to earn interest on their crypto holdings “auto-magically” and that the company used investors’ crypto assets in various ways to generate income for itself.
Abra’s recent settlement with the SEC came after the firm reached an agreement with Texas securities regulators in January this year. Abra had agreed to facilitate customer withdrawals and resolved accusations of misleading investment statements in its Earn program. The firm began winding down Abra Earn in June 2023 amid ongoing legal troubles.
This was not Abra’s first SEC settlement. In 2020, the firm agreed to pay $150,000 to the SEC and the Commodity Futures Trading Commission (CFTC) to resolve an investigation into its unregistered swap products.
The SEC and CFTC found that from 2017 to 2019, Abra offered and sold security-based swaps to retail investors without meeting the registration requirements under federal securities laws and CFTC regulations.
Cryptocurrency Lending Issues
The SEC has actively pursued regulatory actions against various cryptocurrency lending platforms. A number of major names under probe are Coinbase and Gemini.
In January 2023, the SEC charged Gemini Trust Company and Genesis Global Capital, LLC for the unregistered offer and sale of securities through the Gemini Earn crypto lending program.
At its peak, the Gemini Earn program had approximately $900 million in assets from 340,000 investors. In November 2022, Genesis halted withdrawals due to insufficient liquid assets following market volatility, leaving investors unable to access their funds.
The SEC alleged that Gemini Earn, which allowed customers to loan their crypto assets to Genesis in exchange for interest payments, constituted an unregistered securities offering.
Gemini and Genesis filed motions to dismiss the SEC’s lawsuit, but the efforts were denied by a U.S. district judge. Genesis agreed to pay a $21 million penalty to settle SEC charges.
In September 2021, Coinbase announced that it had received a Wells Notice from the SEC regarding its planned Coinbase Lend program. It was a formal notification that the SEC intended to take an enforcement action against the company.
Responding to the Wells Notice, Coinbase argued that it had been transparent with the SEC about Lend and that the program was not a security. However, facing the agency’s intention to pursue a legal action, the company decided to abandon its plans to launch the Lend program.
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