The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) jointly announced Monday that they had settled charges with Abra, a crypto investment app maker.
In the case of the SEC, the agency accused Abra of "offering and selling security-based swaps to retail investors without registration and for failing to transact those swaps on a registered national exchange." The CFTC charged Abra "for entering into illegal off-exchange swaps in digital assets and foreign currency with U.S. and overseas customers and registration violations."
The companies involved in the settlement were Plutus Financial Inc., which does business as Abra, as well Plutus Technologies Philippines Corporation, which operates as Abra International. In both instances, the firms reached a settlement and will pay a combined $300,000 in penalties ($150,000 to each agency), according to court documents.
According to the CFTC statement, the investigation focused on actions between December 2017 and October 2019. The agency said that Abra "accepted orders for and entered into thousands of digital asset and foreign currency-based contracts via a mobile phone application. These contracts, which constituted swaps under the CEA, enabled customers to enter into financial transactions, with the respondents acting as the counterparty, to gain exposure to price movements of over seventy-five digital assets."
"By entering into these contracts via their app, respondents violated Section 2(e) of the CEA, which makes it unlawful for any person, other than an eligible contract participant, to enter into a swap unless the swap is entered into on, or subject to the rules of, a board of trade designated as a contract market. Additionally, in soliciting and accepting orders for these contracts, the respondents illegally operated as an unregistered futures commission merchant," the CFTC continued.
The SEC alleged that Abra "marketed its app to retail investors, yet Abra took no steps to determine whether users who downloaded the app were 'eligible contract participants' as defined by the securities laws." Abra is said to have discontinued this offering following discussions with the SEC, but it continued that May while "attempting to limit the offers and sales to non-U.S. people."
"Although Abra moved certain operations outside the U.S., the order finds that its employees in California designed and marketed the swap contracts, and screened and approved users who would be allowed to buy the contracts. The order further finds that Abra's U.S.-based employees effected thousands of stock and ETF purchases in the U.S. to hedge the contracts."
Abra settled the charges while neither confirming nor denying them, according to court documents.