SEC Charges Abra Over Unregistered Crypto Lending Product and Investment Activities

The Securities and Exchange Commission (SEC) has brought charges against Abra, a crypto asset platform operated by Plutus Lending LLC, for allegedly failing to register its retail crypto asset lending product, Abra Earn. The SEC's actions also include allegations that Abra operated as an unregistered investment company, raising significant concerns about investor protection and regulatory compliance within the crypto industry.

According to the SEC, Abra launched Abra Earn in July 2020, a program that allowed U.S. investors to lend their crypto assets in exchange for variable interest rates. This program gained substantial traction, eventually amassing $600 million in assets at its peak, nearly $500 million of which came from U.S. investors. The SEC has alleged that Abra marketed this program with promises of “auto-magically” earning interest, while retaining discretion over how to generate income from these assets. The SEC contends that Abra Earn constituted a security, which should have been registered in accordance with federal securities laws.

The SEC also highlighted that Abra held more than 40% of its total assets, excluding cash, in investment securities, including crypto asset loans to institutional borrowers. This level of investment in securities necessitated registration under the Investment Company Act of 1940, a requirement that Abra allegedly disregarded.

By June 2023, Abra had begun winding down its Abra Earn program, advising U.S.-based customers to withdraw their crypto assets. Despite this, the SEC proceeded with its charges, citing violations of both the Securities Act of 1933 and the Investment Company Act of 1940. In response to these charges, Abra has reportedly agreed to an injunction that prohibits further violations of the SEC's registration provisions. Additionally, the company will pay civil penalties, the amounts of which will be determined by the court. As part of the settlement, Abra has neither admitted nor denied the SEC's allegations.

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. These warnings emphasize the importance of due diligence in navigating the volatile crypto market, particularly when engaging with unregistered products or services.

This recent SEC action follows another legal challenge for Abra. In June 2023, Abra and its CEO, William Barhydt, settled with 25 state financial regulators in the U.S. for operating a crypto business without the necessary approvals. The platform was accused of offering crypto trading and investing services without proper licensing. As part of that settlement, Abra was ordered to return over $82.1 million in crypto assets to U.S. customers across the settling states and to cease its crypto activities in the region.

The ongoing legal issues surrounding Abra highlight the growing regulatory scrutiny faced by crypto platforms, as authorities seek to ensure compliance with established financial laws to protect investors and maintain market integrity.