US Regulators Take Joint Action Against Crypto Firms' Swaps Offering

Published on by Cointele | Published on

Two related cryptocurrency firms have fallen foul of United States financial regulators for entering into illegal off-exchange swaps in digital assets and foreign currency.

On July 13, the U.S. Commodity Futures Trading Commission issued an order filing and settling charges against the two firms.

The announcement states, "Abra is a private company headquartered in California that offers a phone application allowing people to conduct financial transactions through contracts memorialized on the Bitcoin blockchain."

According to the SEC, the Abra mobile app enabled users to enter into financial transactions with Abra or Plutus Tech acting as the counterparty.

Users were encouraged to fund their accounts by depositing U.S. dollars, Bitcoin or other assets and, as of March 2018, were able to enter into contracts to gain synthetic exposure to the price movements of dozens of currencies, including the euro and the Mexican peso.

Starting in February 2019, Abra expanded its business to enable app users to enter into contracts that provided synthetic exposure to the price movement of U.S. stocks and exchange-traded funds.

"Specifically, the companies said that foreign investors would enter into contracts with Plutus Tech, a private Philippine company partially-owned by Abra and dependent on Abra for funding and on Abra employees in California to run most of the business."

According to the SEC, the contracts' design, investor solicitation, marketing and hedging through stock and ETF purchases in the U.S. were all done by the California team.

Despite screening and controls by both firms, Plutus Tech apparently entered into contracts with five people in the U.S. The Commission has judged that the contracts in question were security-based swaps and were offered and sold to non-eligible contract participants without an effective registration statement, in violation of the U.S. Securities Act.

These violations involve unlawfully offering swaps to U.S. and overseas customers that were entered into without being subject to the rules of a board of trade designated as a contract market.

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