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The Texas State Securities Board said Thursday that it filed enforcement actions against various entities collectively known as Abra and CEO Bill Barhydt.

The actions allege the respondents committed securities fraud and engaged in deception in connection with the offer and sale of investments in Abra Earn and Abra Boost, the state regulator said in a statement.

Specifically, it alleges that the entities offered or sold Abra Earn to accredited and unaccredited investors and Abra Boost to accredited investors. 

“The alleged misconduct includes the intentional concealment of financial information reflecting the capitalization of parties, defaults on loans and the transfer of assets to Binance,” the regulator said in the statement, adding that the actions also allege that the firms “were or were nearly insolvent” as of March 31.

The regulator noted that Abra has not yet had the opportunity to challenge the allegations. It said that the enforcement actions don’t prevent the respondents from returning assets to clients. 

The Texas regulator said the parties collectively had around $116.79 million of assets under management for U.S. Abra Earn and Abra Boost investors. The agency noted that it’s been leading a working group of state securities regulators organized through the North American Securities Administrators Association.

Secret transfers to Binance

A 30-page enforcement action document notes exposure to failed crypto exchange FTX, in addition to Genesis, 3AC, Auros and Babel Finance. It also accuses Abra entities of “secretly transferring assets to Binance.”

Founded in 2014 by Barhydt, Abra provides a crypto platform for both individual and institutional clients with services such as trading, lending and borrowing. It cut jobs last year, and in 2020 settled charges with the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission.

The SEC had accused Abra of “offering and selling security-based swaps to retail investors without registration and for failing to transact those swaps on a registered national exchange.”

The company didn’t immediately respond to a request for comment from The Block. 

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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Crypto lender Abra has been insolvent since at least March 31, 2023, state securities regulators alleged on Thursday.

The Blockchain Association said Thursday that it filed a Freedom of Information Act request with the U.S. Securities and Exchange Commission, soliciting details about the regulator’s interactions with a little-known crypto exchange called Prometheum amid a flurry of speculation on Crypto Twitter. 

“This whole story — Prometheum’s ATS, its CEO’s testimony in Congress — makes no sense,” Blockchain Association chief policy officer Jake Chervinsky said on Twitter. “Something fishy is going on here.”

Prometheum has been the subject of discussion since its co-CEO Aaron Kaplan was put in front of Congress earlier this week and expressed strong support for the SEC and its means of regulating crypto exchanges, while criticizing much of the industry. The company says it’s a broker-dealer that has received approval from the the Financial Industry Regulatory Authority as an alternative trading system.

Kaplan’s testimony in Congress came as many in the industry have bemoaned what they argue is a hostile regulatory framework in the U.S., especially with recent lawsuits filed by the SEC against exchanges Coinbase and Binance. As many have argued that new legislation isn’t necessary, Kaplan said he didn’t think that was the case. 

Prometheum plans for trading regulated crypto

Yet some industry experts heavily disagreed with his take. Rodrigo Seira, special counsel at Paradigm, noted that Prometheum plans to list cryptocurrencies that are securities in a regulated way but argued that the SEC takes the view that most cryptocurrencies are unregistered securities, meaning that they cannot be traded even on regulated exchanges.

“Therefore, Prometheum’s ATS won’t be able to trade any tokens unless projects first register the tokens with SEC. And as we have pointed out, there are effectively no tokens registered with the SEC because the current regime is not a viable option,” Seira said on Twitter.

Robinhood, which is a regulated exchange, even delisted multiple cryptocurrencies on this very basis.

When asked in the hearing by Republicans Congressman Mike Flood whether Prometheum lists bitcoin or ether, Kaplan replied that it doesn’t list either of them. Flood then argued that, with the regulated exchange unable to list such cryptocurrencies, the statement that no further legislation is needed “doesn’t make sense.”

Prometheum said last year that it planned to support digital asset securities including Flow, Filecoin, The Graph, Compound and Celo. The company didn’t immediately respond to a request for further comment from The Block. 

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.