The US Securities and Exchange Commission (SEC) recently took legal action against crypto lending firm Abra for its failure to register its crypto asset lending product, Abra Earn. The company also faced charges for operating as an unregistered investment company. Stacy Bogert, Associate Director of the SEC’s Division of Enforcement, expressed concerns about Abra’s actions, highlighting the significant amount of securities Abra sold to US investors without following the necessary registration laws.
Abra’s Abra Earn program, launched in the US in July 2020, allowed investors to lend crypto assets in exchange for variable interest rates. The total assets reached around $600 million, with a majority of nearly $500 million coming from US investors. The SEC alleged that Abra marketed the product as a way for investors to earn interest effortlessly, using investors’ assets to generate income and finance interest payments. However, the SEC complaint outlined that Abra Earn was offered and sold as a security without meeting SEC registration requirements.
In response to Abra’s misleading practices, the SEC reached a settlement with the company, which included an injunction against violating registration provisions and civil penalties to be determined by the court. Additionally, the Texas State Securities Board issued an emergency cease and desist order against Abra, accusing the company of fraudulently portraying itself as a “crypto bank” without appropriate licensing and insurance. The board also uncovered financial instability within Abra and its CEO, William “Bill” Barhydt, during its investigation.
Abra faced further repercussions as it settled with 25 US states to refund $82 million to customers who experienced frozen withdrawals. To avoid substantial monetary penalties, Abra agreed to halt accepting crypto allocations from US customers and refund outstanding balances. This series of legal actions and settlements shed light on the dangers of operating an unregistered and deceptive investment scheme in the crypto industry.
Abra’s inability to comply with registration laws and its deceptive practices have led to significant legal consequences and financial obligations. These actions not only pose a threat to investors’ financial security but also undermine the integrity of the cryptocurrency market. It is crucial for companies operating in the crypto space to prioritize transparency, compliance, and ethical conduct to protect investors and maintain trust in the industry.
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