SEC Settles Charges Against Blockchain App Developer Plutus for Selling Unregistered Security-Based Swaps | Practical Law

SEC Settles Charges Against Blockchain App Developer Plutus for Selling Unregistered Security-Based Swaps | Practical Law

The SEC settled charges against a company and its offshore affiliate for violating the Securities Act by selling security-based swaps (SBS) to retail investors without registration and violation of the Exchange Act for failing to effect such swaps on a registered national securities exchange.

SEC Settles Charges Against Blockchain App Developer Plutus for Selling Unregistered Security-Based Swaps

by Practical Law Finance
Published on 20 Aug 2020 • USA (National/Federal)
The SEC settled charges against a company and its offshore affiliate for violating the Securities Act by selling security-based swaps (SBS) to retail investors without registration and violation of the Exchange Act for failing to effect such swaps on a registered national securities exchange.
On July 13, 2020, the SEC entered a cease-and-desist order settling charges against Plutus Financial Inc. d/b/a/ Abra (Abra) and its offshore affiliate, Plutus Technologies Philippines Corp. (Plutus Tech) for violating:
According to the order, Abra developed and owns an app that allows investors to conduct financial transactions on the Bitcoin blockchain with Abra or Plutus Tech acting as the counterparty. Such transactions allowed investors to gain synthetic exposure to price movements of stocks and exchange-traded fund (ETF) shares that trade in the US and are therefore SBS. The order states that Abra marketed its app to retail investors without taking steps to ensure that app users were eligible contract participants (ECPs), as defined and required by the Securities Act.
In February 2019, Abra began offering contracts to US and overseas investors but halted all offers after conversations with SEC staff. Abra resumed business in May 2019 but purported to limit subsequent offers and sales to non-US investors.
The SEC found that Abra and Plutus Tech violated:
  • Section 5(e) of the Securities Act by offering and selling SBS to persons who were not ECPs without an effective registration statement; and
  • Section 6(l) of the Exchange Act by effecting transactions with foreign and US retail investors in SBS that were not effected on a registered national securities exchange.
Abra and Plutus Tech agreed to pay a combined penalty of $150,000.
The CFTC issued a parallel enforcement action stating that Abra and Plutus Tech violated Section 2(e) and 4d(a)(1) of the Commodity Exchange Act (CEA) (In the Matter of: Plutus Financial, Inc. (d/b/a Abra) and Plutus Technologies Philippines Corp. (d/b/a Abra International), CFTC No. 20-23, (July 13, 2020)). The CFTC is requiring Abra and Plutus Tech to pay a combined $150,000 civil monetary penalty and cease and desist from further CEA violations.
For more information on the SEC's statements, guidance, and actions related to digital assets, see Practice Note, SEC Regulation of Digital Assets.
For more information on the regulation of blockchain-based businesses generally, see Blockchain Toolkit.