The Blockchain Association has filed a Freedom of Information Act (FOIA) request with the U.S. Securities and Exchange Commission (SEC), with an inquiry into the regulator's interactions with Prometheum, a relatively lesser-known cryptocurrency exchange that has recently garnered significant attention.
Prometheum's co-CEO Aaron Kaplan was recently invited to testify before Congress, a rare occurrence for an executive from a relatively obscure company in a nascent industry. During the session, Kaplan voiced his support for the SEC's existing regulatory framework for cryptocurrency exchanges, while casting criticism on a significant portion of the industry. His statements have sparked intense discussions within the industry, and have elicited skepticism from some quarters.
Possible Inconsistencies: Prometheum's Relationship with the SEC
Adding to the intrigue surrounding Prometheum's operations is a revelation that the company paid over $1.5 million in sales commissions to a Chinese-affiliated entity, which carries a less-than-stellar regulatory track record. This has raised concerns within the Blockchain Association, leading it to further investigate the company's regulatory dealings.
The criticisms are mainly centered on the fact that, despite being approved as a SPBD, Prometheum faces a considerable challenge in terms of regulatory compliance, and, for its end, the capacity to do so. The company's trading platform will not be able to facilitate the trading of any tokens until the projects behind those tokens have registered with the SEC.
As it stands, there is no clear pathway for such registration under the existing SEC regime. This highlights a glaring contradiction in Prometheum's claims of offering a regulatory compliant platform for digital asset securities.The skepticism is well-founded, with several red flags raising questions about Prometheum's operations. The company reportedly paid in excess of $1.5 million in sales commissions to a Chinese-affiliated entity, which carries a dubious regulatory record. Such practices would typically invite scrutiny, but they appear to have been overlooked in Prometheum's case. These findings are the result of diligent work by the Blockchain Association, which continues to investigate the company's actions and interactions with the SEC.
Further, Prometheum's claims of being a compliant path were brought into question during Kaplan's congressional hearing and an interview with journalist Laura Shin. It was suggested that Kaplan misinterpreted the legalities surrounding the crypto industry, thereby misrepresenting his company's position. This was reflected in the words of Representative Mike Flood, who dismissed Prometheum's assertions as unfounded.
Regulatory Concessions
Despite its status as a SPBD, Prometheum's Alternative Trading System (ATS) faces a considerable regulatory hurdle. The platform will be unable to trade any tokens until those tokens' creators have first registered with the SEC. This presents a roadblock, given the lack of a clear path to registration under the current SEC regime—a reality at odds with Prometheum's proclamations of offering a regulated platform for digital asset securities.
Prometheum's unusual trajectory underscores the broader struggle within the crypto industry to navigate the complex and rapidly evolving regulatory environment. It highlights the critical need for greater transparency and a well-defined regulatory framework that can keep pace with innovation in the digital asset space.
Prometheum has been under scrutiny since its co-CEO, Aaron Kaplan, testified before Congress and made statements supporting the SEC's regulatory approach towards crypto exchanges, while criticizing much of the crypto industry. Prometheum claims to be a broker-dealer approved by the Financial Industry Regulatory Authority as an alternative trading system.
Current Tensions In U.S. Crypto Regulation
Prometheum's position comes at a time when the crypto industry has been expressing concerns over what they perceive to be an antagonistic regulatory environment in the U.S., especially in the wake of recent lawsuits filed by the SEC against major exchanges like Coinbase and Binance.
Prometheum plans to list regulated cryptocurrencies. However, this has been met with criticism. Rodrigo Seira, special counsel at Paradigm, pointed out that the SEC's stance is that most cryptocurrencies are unregistered securities, and therefore cannot be traded even on regulated exchanges.
In response to a question during the congressional hearing from Congressman Mike Flood about whether Prometheum lists bitcoin or ether, Kaplan confirmed that the platform does not list either of these. Kaplan's statement seems to contradict the idea that no additional legislation is needed, as argued by Flood.
Prometheum had previously announced plans to support digital asset securities, including Flow, Filecoin, The Graph, Compound, and Celo. The company has yet to provide a public disclosure on the matter.
Disclaimer: 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.
