Abra Fined $300K in Joint Effort by SEC and CFTC for ‘Security Swapping’

In a joint effort by the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC), cryptocurrency trading app Abra, and its partner, Plutus Technologies, have been fined $300,000.  The total represents two $150,000 fines, with each being paid to the CFTC and SEC.

The fines were imposed by the two regulatory bodies for “offering and selling security-based swaps to retail investors without registration and for failing to transact those swaps on a registered national exchange”.  For more information you can review the CFTC order and the SEC order.

A Brief Timeline

While there are instances where companies are blatantly in breach of regulations, the situation involving Abra and Plutus is not as simple.

The issue originally arose over a year ago, when Abra had their first run-in with the SEC.  At the time, Abra offered its clients ‘synthetic exposure’ to U.S. based securities.  This was achieved through Abra providing its clients access to investments, in the form of a contract which mimicked the securities, without actually purchasing the underlying asset.

As a result of offering this service, multiple events took place.

• SEC identifies Abra security-swapping service as being in violation of regulations
• Abra shuts down security-swapping, after found servicing U.S. based investors
• Abra moves various operations to the Philippines
• Security-swapping services re-launch, with access revoked to U.S. based investors.

Unfortunately for Abra and Plutus, regulators felt that ceasing service for U.S. investors, and moving a portion of their operations to the Philippines, was not enough.  It was found that much of the design and operational aspects of the service, continued to occur within the U.S., making it subject to U.S. regulations.

Representatives from the CFTC and SEC, commented on this.  They touched on how, despite investor restrictions, the rules still apply.

Daniel Michael, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit, stated,

“Businesses cannot ignore the registration requirements designed to provide investors with the information necessary to evaluate securities transactions…Further, businesses that structure and effect security-based swaps may not evade the federal securities laws merely by transacting primarily with non-U.S. retail investors and setting up a foreign entity to act as a counterparty, while conducting crucial parts of their business in the United States.” 

The Charges

While both the CFTC and the SEC, were involved in the issuance of these fines, their rulings were independent.  In each case, Abra and Plutus were able to pay the fine, with no admittance to any wrongdoing.  The following were the findings of the regulatory bodies.

CFTC – Abra/Plutus in violation by, “…entering into illegal off-exchange swaps in digital assets and foreign currency with U.S. and overseas customers and registration violations.”

SEC – Abra/Plutus in violation of, “…federal securities law provisions concerning unregistered offers and sales of security-based swaps and requiring that certain swap transactions occur on a registered national exchange.”

Money to Spare

Roughly two months ago, we reported on a $5M investment into Abra, by the Stellar Development Foundation (SDF).  This move caught our attention at the time, because it marked the potential for Abra to eventually foray into the world of stablecoins and digital securities. The SDF has shown an interest in these types of investments, as evident through a similar past investment in security token platform, DSTOQ.

With this fine, it would appear as though Abra was dealing in securities all along – even if they didn’t realize.

Despite having to pay the fines discussed here today, Abra appears unlikely to be phased.  Between the aforementioned investment from the SDF, and others, Abra has raised north of $45M since its creation.

Abra

Founded in 2015, Abra is a crypto-currency investment app, based out of Mountain View, California.  Since its launch, Abra has gone on to become a popular platform for investors.  It provides access and trading support for a bevy of digital assets.

CEO & Founder, Bill Barhydt, currently oversees company operations.