US authorities take action against Abra and Plutus Technologies for illegal off-exchange swaps
The Securities and Exchange Commission and the Commodity Futures Trading Commission target California-based Abra and a related firm in the Philippines for offering and selling security-based swaps to retail investors without registration.
The United States Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) today announced actions against California-based Abra and a related firm in the Philippines for offering and selling security-based swaps to retail investors without registration.
According to the SEC’s order, Abra developed and owns an app that enabled users to bet on price movements of U.S.-listed equity securities. Using the app, individuals were able to enter into contracts that provide synthetic exposure to price movements of stocks and exchange-traded fund (ETF) shares trading in the U.S. through blockchain-based financial transactions with Abra or with related company Plutus Technologies Philippines Corp. The order finds that Abra told users they could choose securities whose performance they wanted to mirror, and the value of their contract would go up or down the same amount as the price of the underlying security. The order further finds that these contracts were security-based swaps subject to U.S. securities laws.
In February 2019 Abra started offering the contracts to investors in the U.S. and abroad. The order finds 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. According to the order, Abra stopped offering contracts in February 2019, after conversations with SEC staff, but resumed the business in May 2019, this time 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.
The SEC’s order finds that Abra and Plutus Technologies violated 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. Without admitting or denying the findings in the order, Abra and Plutus Tech agreed to a cease-and-desist order and to pay a combined penalty of $150,000.
In a parallel action, the Commodity Futures Trading Commission announced a settlement with Abra and Plutus Technologies arising from similar conduct.
The CFTC today issued an order filing and settling charges against respondents Plutus Financial, Inc. d/b/a Abra of California, and Plutus Technologies Philippines Corp. d/b/a Abra International of the Philippines for entering into illegal off-exchange swaps in digital assets and foreign currency with U.S. and overseas customers and registration violations.
The order requires the respondents to pay a $150,000 civil monetary penalty and to cease and desist from further violations of the Commodity Exchange Act (CEA).
