Abra Kadabra! And it’s gone. Cryptocurrency investment company Abra, also known as Plutus Financial, has been issued an emergency cease and desist order by Texas securities regulators. The authorities allege that the company and its Chief Executive Officer Bill Barhydt engaged in securities fraud. In addition, the enforcement order states that Abra offered investment products to unaccredited investors, and that the company has been partially insolvent since March 31, 2023.
According to the Texas Securities State Board, the Texas Enforcement Division warned Barhydt in May 2021 that Plutus Financial’s products appeared to constitute investment contracts or securities. In response, Abra consistently argued against such characterization in its marketing, stating that users take no investment-like risks when depositing digital assets into their interest accounts. However, investigations reveal that Plutus Financial has been “touting” their risk management strategy compared to now-defunct Voyager Digital and Celsius Network.
Texas state authorities claim that Abra has been winding down their Earn product, secretly transferring assets to Trade accounts and Binance. As of February this year, Abra’s balances on the platform are valued at roughly $118 million. Despite prior warnings, regulators said that the company continued to offer and sell investment products through Abra Earn and Abra Boost until October 2022.
Abra also allegedly held or currently holds nearly $30 million on Babel Finance, $30 million (or more) on Genesis, and around $10 million on Three Arrows Capital (3AC) – all three companies having dealt with bankruptcy in the past year. Abra’s main custodian, Prime Trust, does not possess a money transmitter license in Texas, according to state authorities.
As of May 17, 2023, Abra claims to manage $49 million in assets for 229 Boost investors, including 23 Texas-based ones, and to hold $66 million on behalf of 9,087 Earn investors, with 827 residing in the Lone Star State. This is not the first time federal charges have been brought against Abra. In July 2020, the SEC charged the company with selling security-based swaps without registration, and the CFTC charged them with engaging in illegal off-exchange swaps with overseas customers, mainly from the Philippines. Abra paid a total of $300,000 for these penalties.
Although no official hearing date has been set, Texas state authorities have allowed customers to withdraw funds from the platform in the meantime. It remains uncertain how this enforcement action will impact the future of Abra and the wider cryptocurrency industry, and whether this case will spur further regulatory scrutiny.
Source: Decrypt
