In the Matter of Abra Bank, Ltd.

Plutus Financial, Inc., d/b/a Abra (Abra) (defendant), in collaboration with affiliate company Plutus Technologies Philippines Corporation d/b/a Abra International (Plutus Tech) (defendant), developed, owned, and operated a mobile-phone application in which users could enter into financial transactions involving virtual or foreign currencies. In a typical transaction, the user created a virtual wallet on the Abra platform, after which the user would post collateral by depositing bitcoin into the wallet. The user could then speculate on the price movements of other virtual or foreign currencies. The transaction worked through a smart contract between the user and Abra. At the end of the contract term, if the value of the virtual or foreign currency increased, the user would receive his original collateral as well as a profit calculated on the increase in value. If the value of the reference currency decreased, Abra would deduct that loss from the collateral, and the user would receive any remaining collateral. As the counterparty to each swap, Abra had liability exposure to the extent that it had a responsibility to pay the users if their reference currencies increased in value. Abra attempted to hedge this exposure by borrowing bitcoin and then exchanging the bitcoin for the reference asset on a one-to-one basis. In early 2019, the Commodity Futures Trading Commission (CFTC) (plaintiff) and the Securities and Exchange Commission contacted Abra, informing Abra that it was under investigation. Abra cooperated in the investigation and voluntarily ceased entering into the swap transactions with United States-based customers. However, Plutus Tech continued to enter into such transactions with foreign customers. Moreover, although Plutus Tech was the formal counterparty in the transactions with foreign customers, Abra played a significant back-office role, including product design, management, marketing, and accounting. At no point did either Abra or Plutus Tech take any measures to determine whether the users qualified as eligible contract participants (ECPs) authorized to trade in swaps pursuant to the Commodity Exchange Act (CEA). The CFTC instituted proceedings against Abra and Plutus Tech for alleged violations of the CEA. Instead of proceeding to adversarial litigation, Abra and Plutus Tech submitted an offer of settlement, which the CFTC accepted.