In a recent update, the Texas regulators issued a cease and desist order to the US-based financial service company Abra. The regulators claimed that the Abra team, led by the chief executive officer Bill Barhydt orchestrated a financial crime.
In light of the authority enforcement action, Abra group is accused of issuing investment products to consumers illegally. The regulators claimed that from March 31, Abra was battling insolvency.
Scrutiny of Abra Insolvency Allegation
In an earlier report, the Texas Securities State Board (TSSB) found that some of the financial products issued by Abra affiliate company Plutus Financial comprised of investment securities. The TSSB confirmed to launch an investigation on the operations of the Abra to examine whether the crypto exchange conforms with the regulation.
Per the TSSB findings, the regulators urged Barhydt and the team to uphold compliance. In a statement, the probing team noted that Plutus Financial has been compromising its risk management strategy, which replicates the approach taken by Voyager.
After a thorough investigation, the regulators noted that Plutus’ financial affiliate company invested around $12 million in one of the platforms owned by Sam Bankman Fried. Earlier, the Barhydt had penned a letter stating that Plutus Financial had no exposure to the now defunct crypto exchange FTX.
The authority witnessed that Abra group had invested heavily in most crypto firms battling liquidation in 2022. As of this writing, the investigators realized that Abra owns significant shares in Babel Finance, Genesis, and Three Arrow, which translates to $30000000, $30000000, and $10000000, respectively.
Beyond this, the probing team found out that Abra was in the process of sunsetting the Earn product. In the process, the Abra team has directly transferred assets from the Earn Account to the Trade Account.
The regulators noted that Abra “secretly” moved the funds via the Binance platform without informing the public. After closely examining the Abra value, the regulators observed that the crypto firm owns assets worth $118 million.
On May 17, the Abra team issued the firm valuation report, which demonstrated that management controlled assets worth $49 million. The $49 million were accumulated from 229 boost investors, of which 23 resided in Texas while 206 were from other parts of the world. Subsequently, the Abra team was confirmed to own $ 66 million, in which 9087 Earn investors invested.
Abra Group Violates Financial Regulation
Furthermore, the market regulators observed that despite the enforcement action on selling investment products, Abra encouraged the customers to invest in Abra Earn and Abra Boost. The regulators confirmed to issue early warnings to Abra urging the crypto firm to suspend the buying and selling of investment products on the platform.
Besides selling investment products that correspond to securities, the regulators accused Abra of providing misleading information. The regulators stated that Abra engaged in deceptive promotion to lure customers.
Nevertheless, the regulators questioned the relationship between Abra and Prime Trust. Based on the regulator’s record, the Prime Trust has not been offered the money transmitter permit to operate in Texas. In an exclusive interview with the Abra group, the crypto firm recognized Prime Trust as its custodial partner.
Responding to the TSSB claims, the Abra team adopted a unique marketing approach to attract large audiences. In 2022 the Abra group mentioned that the crypto exchange had implemented practical strategies to minimize the investment risk on the earn platform.
The report stated that the earn users must only deposit their crypto assets to their respective interest accounts. Such an investment enables the user to garner interest by simply transferring the digital assets to the Interest Account.
Abra Faces Charges
Reportedly this was not the first time Abra engaged in a regulatory tussle with the US federal unit. The US Securities and Exchange Commission (SEC) filed charges against Abra in July 2020 for providing unregistered securities swaps to the public.
The SEC claimed that Abra failed to complete the registration process with the regulators to proceed with the buying and selling security swaps.Following the SEC lawsuit, the US Commodity Futures Trading Commission alleged that Abra violated the law when offering the off-exchange swap to the Philippine users.
The CFTC legal action compelled Abra to settle court penalties worth $300,000.In the meantime, the Texas authority is yet to confirm the official date for the court hearing. The TSSB office has urged the Abra community to withdraw their assets from the platform.