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Abra Kadabra! And it's gone.
Authorities claim the cryptocurrency company, also known as Plutus Financial, and Chief Executive Officer Bill Barhydt have engaged in securities fraud. The enforcement order also states it offered investment products to unaccredited investors and that the company has been at least partially insolvent since March 31, 2023.
According to the Texas Securities State Board, on May 12, 2021, the Texas Enforcement Division issued a warning to Barhydt that Plutus Financial’s products appeared to constitute investment contracts or securities. The state set up a working group to further investigate the cryptocurrency company.
Abra has tried to argue against that characterization in its marketing.
“Earn users take no investment-like risks when they deposit digital assets into Interest accounts,” the company said last year. “Rather, Earn users are simply moving or placing their existing assets into their Interest Accounts with the possibility of receiving interest, but notably, no risk of an investment-type loss.”
The order also states that despite a letter from CEO Bill Barhydt, claiming the company had no exposure to the FTX collapse, a subsidiary of Plutus Financial did have more than $12 million in assets on the platform run by Sam Bankman-Fried.
Abra also allegedly held or currently holds nearly $30 million on Babel Finance, $30 million (or more) on Genesis, and roughly $10 million on Three Arrows Capital (3AC). All three of those companies have been touched by bankruptcy in the past year.
Last, but certainly not least, Texas state authorities claim that Abra has been winding down their Earn product, and transferring assets to Trade accounts. The company has been “secretly transferring” these funds to Binance, according to authorities. As of February this year, balances for Abra on the platform are valued at roughly $118 million.
Despite the warning, the company continued to offer and sell investment products–through Abra Earn and Abra Boost–until roughly October 3, 2022, regulators said.
Abra did not immediately reply to a request for comment from Decrypt.
Alongside offering and selling investment contracts that resemble securities, the working group also alleges that Abra “made offers containing statements that are materially misleading or otherwise likely to deceive the public.”
Abra states Prime Trust as their main custodian, which according to Texas authorities, does not operate with a money transmitter license in the state.
As of May 17, 2023, Abra claims $49 million in assets under management (AUM) on behalf of 229 Boost investors, of which 23 are Texas-based. The company also claims to hold $66 million on behalf of 9087 Earn investors, of which 827 reside 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. Similarly, the CFTC charged the company with engaging in illegal off-exchange swaps with overseas customers, namely from the Philippines. The company paid $300,000 for these two penalties.
Texas state authorities have not set a date for an official hearing, but have allowed customers to withdraw funds from the platform, for the time being.