The Abra cryptocurrency app and Plutus Tech Corporation agree to a cease-and-desist order after being charged by the Securities and Exchange Commission (SEC) for selling unregistered security-based swaps to investors.
The SEC noted in its order that it had indicted Abra and its affiliate Plutus in the Philippines for supposedly transacting security-based swaps to retail investors on an unregistered exchange.
The securities watchdog explained that in 2019, Abra developed and ran an app that enabled users to bet on price movements of stocks and exchange-traded fund (ETF) shares trading in the U.S.
These contracts were made accessible to retail investors, but Abra took no initiative to confirm that their app users were authorized to contract participants.
The returns on the contracts were directly related to the price movements of the securities on the exchange, and investors were able to mirror the performance of their favorite stocks and earn huge profits.
The CFTC Files Further Charges
In related news, the U.S Commodity Futures Trading Commission (CFTC) has independently sanctioned the two crypto startups for offering unlawful off-exchange crypto swaps to the U.S. and foreign clients.
Although Arba has since shut down the service to U.S. based investors, the crypto app will not be able to evade U.S federal securities laws, since crucial parts of their business are still conducted in the United States.
The CFTC claimed that while Plutus in the Philippines handled the swaps, Abra in California designed the swap contract and the hedging mechanism.
Meanwhile, Abra’s CEO Bill Barhydt tweeted that his startup is doing very well, with a growing user-base in 100 countries and investors making millions of dollars in deposits via bank, stablecoin, Bitcoin and over 50 other digital currencies.
However, he would not comment on the SEC and CFTC charges, claiming they were “not a lawsuit” and won’t share any thoughts about the matter.
A Strong Message to Companies Engaging in Illegal Swaps
In what seems to be a strong message to crypto companies that engage in illicit activities, Abra and Plutus will now pay a joint fine of $150K to both the SEC and CFTC.
The companies will also be forced to discontinue the securities swap feature on the Abra app. However, it appears that the app will continue to operate as a standard crypto wallet.
It seems unlikely that other crypto wallets will be targeted by the SEC, given that few support securities trading. In contrast, exchange-enabled crypto apps such as Exodus and Coinomi generally rely on approved and regulated exchanges.