The US Securities and Exchange Commission (SEC) recently announced settled charges against the crypto lending firm Abra for its failure to register its crypto asset lending product, Abra Earn. This move came after Abra reportedly sold nearly half a billion dollars of securities to US investors without complying with registration laws designed to protect investors.
Abra launched its Abra Earn program in the United States in July 2020, allowing investors to lend crypto assets in exchange for variable interest rates. The program quickly amassed around $600 million in assets, with the majority coming from US investors. The SEC alleges that Abra marketed Abra Earn as a way for investors to earn interest “auto-magically,” utilizing investors’ assets to generate income and fund interest payments.
According to the SEC, Abra offered and sold Abra Earn as a security without meeting the requirements for an SEC registration exemption. Additionally, the regulator claims that Abra operated as an unregistered investment company for at least two years, holding over 40% of its assets in investment securities, including crypto asset loans to institutional borrowers. As a result, Abra has agreed to settle the charges without admitting or denying the allegations, facing an injunction against violating registration provisions and civil penalties.
In addition to the SEC charges, the Texas State Securities Board issued an emergency cease and desist order against Abra on June 15, 2023. The Board accused the crypto firm of committing fraud by misleadingly presenting itself as a “crypto bank” without the required Texas bank charter and Federal Deposit Insurance Corporation deposit insurance. The Board’s investigation also revealed that Abra and its CEO were allegedly insolvent or nearly insolvent. Furthermore, Abra settled with 25 US states to refund $82 million to customers whose withdrawals were frozen, avoiding substantial monetary penalties.
The downfall of Abra serves as a cautionary tale for companies operating in the crypto space. It highlights the importance of complying with registration laws and providing investors with accurate information to make informed decisions. By prioritizing transparency and regulatory compliance, companies can avoid legal pitfalls and build trust with their customers. Ultimately, the case of Abra underscores the need for responsible practices and adherence to regulatory standards in the crypto industry.
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