SEC sanctions Abra for unregistered swap transactions

Abra and Plutus Technologies Philippines Corp must now pay a total of $300,000 in penalties and follow a cease and desist order

Two US regulators, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have announced they have sanctioned Abra and its related firm, Plutus Technologies Philippines.

In the SEC’s order, the regulator explained that it had charged the two companies “for unregistered security-based swap transactions.” Both companies allegedly offered and sold security-based swaps to retail investors without registration and they did not transact these swaps on a registered national exchange.

Abra and Plutus have agreed to follow a cease and desist order, and pay two $150,000 penalties to the SEC and the CFTC respectively. Overall, Abra will be paying a total of $300,000 in penalties.

The companies have not admitted to or denied any of the allegations in the findings.

Abra allegedly violated the requirements for registration in February 2019 by offering investors exposure to the price movements of stocks and ETF shares and blockchain-based financial transactions. They then failed to make sure users of the app were eligible contract participants as defined by securities laws.

While a portion of Abra’s operations have been moved abroad, the SEC points out that the company’s California-based employees were the ones who designed and marketed the swap contracts. They also screened and approved users who would buy the contracts in future.

Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit, Daniel Michael, emphasised that businesses cannot ignore these registration requirements, as they are designed to give investors the necessary information 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,” Michael explained.

In a separate set of sanctions, the CFTC requires the company to pay a $150,000 civil monetary penalty “for entering into illegal off-exchange swaps in digital assets and foreign currency with US and overseas customers and registration violations.”

Abra was founded in 2014 and raised a total of $52.5 million in funding through ten rounds. The company has not commented on the order.

The SEC has kept a wary eye on the growing popularity of digital assets. The regulator’s website offers learning resources for initial coin offerings (ICOs) and cryptocurrency for the public’s guidance.