SEC and CFTC settled with Abra over blockchain-based swaps

The Securities and Exchange Commission and Commodity Futures Trading Commission entered parallel settlements with cryptocurrency application operator Abra and a related Philippine company on July 13, 2020. The two regulators imposed $150,000 penalties in their respective proceedings, producing a combined $300,000 monetary sanction, and ordered the companies to cease the violations identified by each agency.

The actions mattered because Abra had used bitcoin collateral, blockchain-based contracts and an overseas affiliate to give retail customers synthetic exposure to digital assets, currencies, U.S. stocks and exchange-traded funds. The regulators’ conclusions were structurally important for the emerging crypto-finance market: changing the transaction’s technology or placing its formal counterparty abroad did not, by itself, displace U.S. derivatives law when regulated activity and substantial business operations remained connected to the United States.

Plutus Financial Inc., doing business as Abra, and Plutus Technologies Philippines Corp., doing business as Abra International, consented to both orders without admitting or denying the findings.

Two agencies, two parts of the product

The SEC proceeding concerned contracts referencing individual U.S. stocks and ETF shares. According to its order, those contracts were security-based swaps because their payments tracked the value of securities without conveying ownership of the referenced shares.

Users posted bitcoin collateral equal to their desired exposure. If the referenced security rose, the contract returned the collateral plus an equivalent gain; if it fell, the collateral was reduced. Settlement was reflected in bitcoin rather than through delivery of the underlying stock or ETF shares.

The SEC found that Abra and Plutus Technologies effected more than 10,000 such swaps from May through November 2019, representing more than $2.7 million in notional value. Approximately 2,000 customers were outside the United States, while roughly five were in the United States. The order said screening controls nevertheless allowed about seven swaps involving those U.S. customers.

No registration statement was effective for the contracts, and the transactions were not conducted on a registered national securities exchange. The SEC also found that the companies did not determine whether customers qualified as eligible contract participants. Its settlement imposed a combined $150,000 penalty on the two respondents and a cease-and-desist order.

The CFTC addressed the broader swap business

The CFTC’s order covered a wider product history, from approximately December 2017 through October 2019. It found that Abra and its affiliate entered into thousands of contracts giving U.S. and overseas customers exposure to price movements in more than 75 virtual and foreign currencies, among other assets.

The CFTC classified those contracts as swaps under the Commodity Exchange Act. Its order found that some customers were not eligible contract participants, the swaps were not executed on a designated contract market, and the respondents accepted orders and collateral while operating as unregistered futures commission merchants. The agency imposed its own $150,000 civil penalty and corresponding cease-and-desist requirements.

The two orders should not be collapsed into one undifferentiated charge. The SEC focused on security-based swaps tied to stocks and ETFs. The CFTC addressed digital-asset and foreign-currency swaps and the companies’ intermediary activity. Together, however, they showed coordinated federal treatment of a single application whose product set crossed jurisdictional lines.

Why an overseas counterparty was not enough

The SEC record said Abra halted the stock-and-ETF offering after regulators contacted it in February 2019, then restarted it in May using the Philippine affiliate as counterparty and attempting to limit participation to non-U.S. customers. Some infrastructure moved to Asia, but employees in California continued designing and marketing the swaps, screening users, setting contract prices and arranging purchases of U.S. stocks and ETFs as hedges.

That operational record shaped the enforcement outcome. The agencies did not claim that every blockchain application or synthetic asset was unlawful. Their narrower conclusion was that these contracts met established swap definitions and were offered outside the registration and trading structures required for retail participation.

No event-day cryptocurrency price or trading-volume reaction is asserted. The orders quantified contracts, customers, notional exposure and penalties, but did not calculate investor losses or a market-price effect. As of July 13, 2020, the verified development was a settled enforcement action—not a court judgment establishing broader precedent for every crypto derivative.