NJ Penalty and Cease & Desist Order Part of Coordinated Multi-State Enforcement Actions
TRENTON—Attorney General Matthew J. Platkin and the Division of Consumer Affairs today announced action taken by the Bureau of Securities to stop Abra, a California-based crypto company, and its associated entities from violating New Jersey’s Uniform Securities Law in connection with the sale of interest-bearing crypto accounts that have raised over $116 million nationwide, including from investors with nearly 300 New Jersey-based accounts.
In the Summary Penalty and Cease and Desist Order issued today, the Bureau directed Plutus Financial Inc. d/b/a Abra, Plutus Lending LLC, and Abra Boost LLC (collectively “Abra”) and its CEO and founder William John “Bill” Barhydt to immediately cease and desist from offering and selling unregistered securities to New Jersey investors and to stop misrepresenting and failing to disclose material facts to investors in connection with the offer and sale of securities.
The Bureau also assessed civil penalties of $227,175 against Plutus Financial Inc. d/b/a Abra and Plutus Lending LLC, $5,725 against Abra Boost LLC, and $50,000 against Barhydt.
“Our Uniform Securities Law provides critical protections for investors and compliance with that law is not optional,” said Attorney General Platkin. “As this action against Abra demonstrates, crypto asset platforms that flout New Jersey’s registration requirements and otherwise deceive and defraud investors will be held accountable for their unlawful conduct.”
New Jersey announced the Cease and Desist Order collaboratively with financial and securities regulators in other states that took enforcement action against Abra and Barhydt today.
“New Jersey is working with states across the country to put a stop to crypto platforms operating outside the laws and regulations in place to safeguard investors, ensure transparency in the sale of securities, and protect the integrity of our investment markets,” said Cari Fais, Acting Director of the Division of Consumer Affairs. “As interest in digital assets grows and evolves, consumer protection demands that we hold crypto asset securities to the same high standards we have for traditional securities and take action against those that fall short.”
Since July 28, 2020, Abra has been, at least in part, funding its income-generating activities, which includes lending operations, arbitrage, exchange funds, and yield farming, through the sale of investments in “Abra Earn.” Abra solicited investors to invest in the accounts by depositing certain crypto assets the investors held in their Abra wallets to their Earn Accounts. The Earn Account deposits were then pooled into a reserve account and used by Abra to fund its various income-generating activities. In exchange for investing in the Earn Accounts, investors were promised an above-market interest rate to be paid weekly.
On or about October 3, 2022, Abra purportedly ceased accepting deposits from Earn.
Account investors. Instead of returning assets to Earn Account investors, Abra restricted new deposits in Earn Accounts for all investors and transitioned institutional and accredited investors’ crypto assets into Boost Accounts. Boost Accounts provide the essential functionality of Earn Accounts, but are restricted to institutional and accredited investors and are offered and sold in reliance on an exemption from securities registration.
As of May 17, 2023, Abra had offered and sold unregistered securities in violation of the Securities Law to approximately 9,087 Earn Account investors representing approximately $66.83 million in assets, of which approximately 276 were New Jersey-based Earn Account Investors representing approximately $1.8 million in assets.
Also as of May 17, 2023, Abra had offered and sold securities to approximately 229 Boost Account investors representing approximately $49.96 million in assets, of which approximately 13 were New Jersey-based Boost Account Investors representing approximately $1.17 million in assets.
Through its investigation of Abra’s activities in connection with the offer and sale of securities, the Bureau found that Abra and/or Barhydt engaged in unlawful conduct in violation of the state’s Securities Law, including:
- Offering and selling unregistered securities (Plutus Financial Inc., Plutus Lending, and Barhydt);
- Acting as an agent without registration (Barhydt); and
- Making untrue statements of material fact and/or omitting to state material facts in connection with the offer and sale of securities (Plutus Financial Inc., Plutus Lending LLC, Abra Boost, LLC, and Barhydt).
The untrue statements or omissions of material facts Abra and Barhydt made in connection with the offer and sale of securities include:
- Failing to disclose to Earn Account investors that its Earn Accounts are not currently registered by federal or state securities regulatory authorities, even though the Earn Accounts are “securities” and required to be registered; and
- Failing to disclose the types of investments, trades, and hedging activities that it engaged in with Earn Account customers’ crypto assets; the identities and creditworthiness of the institutions that borrowed Earn Account crypto assets; information or statements related to Abra’s financial condition; and the fact that the Securities and Exchange Commission and the Commodity Futures Trading Commission had taken enforcement action against Abra.
“The enforcement action announced today not only shuts down these unregistered sales of securities in New Jersey and holds the operators accountable, it raises public awareness of crypto-related fraud and the risks associated with this volatile market,” said Acting Bureau Chief Amy Kopleton. “By operating outside of the regulatory framework of the securities industry, Abra and Barhydt were able to mislead investors and withhold from them important information they needed—and were entitled to under the law—to make informed decisions about the investments they were making.”
The action against Abra and Barhydt is the latest of many taken by the Bureau to halt the sale of unregistered securities tied to digital assets. Since 2018, the Bureau has issued more than two dozen Cease and Desist Orders against crypto platforms operating in New Jersey, throughout the United States, and overseas.
The Bureau’s investigation was handled by Investigator Delfin Rodriguez. The Bureau is represented by Assistant Section Chief General Evan A. Showell of the Securities Fraud Prosecution Section in the Division of Law’s Affirmative Civil Enforcement Practice Group.
The Bureau is charged with protecting investors from investment fraud and regulating the securities industry in New Jersey. It is critical that investors “Check Before You Invest.” Investors can obtain information, including the registration status and disciplinary history, of any financial professional doing business to or from New Jersey, by contacting the Bureau toll-free within New Jersey at 1-866-I-Invest (1-866-446-8378) or from outside New Jersey at (973) 504-3600, or by visiting the Bureau’s website at www.NJSecurities.gov. Investors can also contact the Bureau for assistance, or to raise issues or complaints about New Jersey-based financial professionals or investments.