The following is a guest post from Hamilton Keats, CEO and co-founder of Krayon Digital.
In an effort to demonstrate that there is a way forward for crypto companies within the existing regulatory framework, the SEC invited Prometheum to the House Financial Services Committee hearing on digital assets.
This hitherto relatively unknown company is being put forward by the SEC as an example of compliance, but Prometheum’s background is vague. It is alleged that the company is connected to multiple crypto scams and may be funded by the Chinese Communist Party (CCP) š².
The timing of this hearing ties in with a season of intense SEC investigations against other companies that have pursued regulatory dialogue ā companies that arguably deserve a better chance than Prometheum of operating within a compliant framework.
Let’s unpack this bizarre sequence of events
On June 13, the House Financial Services Committee held a hearing on āThe Future of Digital Assets: Bringing Clarity to the Digital Asset Ecosystem.ā
Aaron Kaplan, co-CEO of Prometheum, was invited to testify before the committee. Until this week, Prometheum was relatively unknown in the crypto world.
During Kaplan’s testimony, it became clear that his answers were scripted. Committee members and viewers alike questioned his credibility; his answers echoed the SEC’s existing narrative. as Scott Johnson noticed:
āWow, the CEO of Prometheum, whose only qualification is to lead a dedicated digital securities ATS/BD, seems to have a lot of opinions on unrelated topics like banking principles/stablecoins ā or at least his pre-written notes curiously respond to any Dem question. ā
Who exactly is Prometheum and why are they relevant to this committee?
In the midst of the SEC’s lawsuit against Coinbase and Binance, Prometheum received approval for a unique Special Purpose Broker-Dealer (SPBD) license for digital asset securities. According to Kaplan, this license represents a compliant path for crypto companies, suggesting no need for updated regulations and securities laws.
Commissioner John Roos questionable Arron Kaplan quotes:
āGensler’s approval of this one special purpose broker dealer license doesn’t mean the current system works. Why? Because an ATS cannot facilitate trading in unregistered securities that are not offered under a valid exemption. In addition, Gensler and the Democrats and apparently Mr. Kaplan claim that almost all tokens are unregistered securities, so this approval does nothing for private investors and the general publicā¦ Isn’t it true that there are currently no registered digital assets with real customers? demand and liquidity. For example, can an ATS offer Solana or Cardano, which the SEC recently claimed are unregistered securities, to retail, non-accredited investors on its ATS today?ā
The answer is a resounding no. However, the proposed legislation would allow an ATS to list and trade digital assets alongside stable payment coins and digital commodities.
Getting worse
A special purpose broker-dealer cannot currently hold both digital assets and commodities on the same platform on behalf of retail investors. With the existing law classifying digital assets as securities or commodities, it essentially renders the SPBD license useless.
In addition, the SEC has suggested they expect digital assets to be registered by promoters, a non-issue in a world of open source projects with anonymous or pseudonymous founders.
There are currently zero tokens registered with the SEC because the existing regime is unfeasible for public blockchain networks.
Existing regulations do not allow licensed broker-dealers to operate in the digital asset space. Representative Mike Flood refuted Prometheum’s statements at the hearing as sheer nonsense. Prometheum’s clients can’t even trade BTC and ETH, which make up 60% of the digital asset market.
As Mike Flood put it:
“If the current system works, why can’t your clients trade the most popular and widely used digital assets?”
The obvious answer is that it isn’t, and Prometheum’s claims that law changes aren’t necessary just don’t make sense.
Why is Prometheum hindering regulatory improvements?
If Prometheum is reportedly working to establish a broker-dealer business in the digital asset space, why are they obstructing proposed regulatory improvements that would benefit the industry?
Enter Prometheum Chain: Prometheum’s trade L1 has his sign that has already been sold to members of the Chinese Communist Party (CCP) (laughing emoji).
Prometheum has almost grown up $50 million in funding to date. During the fundraising process, they used a New Jersey-based boutique investment bank, Network 1 Financial Securities ā a company with an unscrupulous track record, including more than 20 regulatory or civil suits against them, and further ties to the CCP.
Perhaps we should assume that credible securities experts manage Prometheum…
Well, that’s another no. Prometheum is run by the Kaplan family, which includes Aaron and Benjamin Kaplan, lawyers by profession who went through a now-unrecognized law school before joining their father’s law firm.
How did a family of lawyers become the first firm to be approved for an SPBD license and end up on the committee testifying for the SEC’s current approach to crypto regulation?
Why don’t real companies get a fair chance?
Apparently hiring ex-SEC staffers goes a long way to getting licensed. The team at Prometheum includes Rosemarie Fanelli, a former NYSE and FINRA employee; John Tornatore of CBOE; and Joseph Zangri, their Chief Compliance Officer, was previously a Senior Enforcement Attorney for the SEC.
This tangled web of convoluted narratives and potential improprieties begs the question: Is the deck stacked against the real advancement of blockchain technology and digital assets in the face of current regulations? Why don’t real companies like Coinbase and Kraken get a real chance?
Hamilton Keats is CEO and co-founder of Krayon Digital, a provider of MPC-based digital asset portfolios for SMBs. Prior to building the Web3 infrastructure with Krayon, Hamilton co-founded Platform One, a London-based asset management platform, and worked at HSBC and DVB Bank. He has a BSc in physics from Imperial College London. Twitter