Prometheum Draws Scrutiny Over Compliance Claims

Few people had heard of Prometheum before its CEO testified in the U.S. House two weeks ago and claimed there is a viable path for digital assets firms to comply with regulations, contradicting claims from industry heavy-weights like Coinbase.

The broker dealer’s CEO Aaron Kaplan doubled down on the claims this week in a debate with Rodrigo Seira, special counsel for venture capital firm Paradigm.

The crux of the matter lies in whether or not the company, which has a license but no assets available to trade, represents a viable way for digital asset exchanges to be compliant and register with regulators.

Kaplan said on the Unchained podcast published Tuesday that Prometheum has built an entirely new platform based on the SEC’s specific guidance for digital asset securities.

Seira didn’t buy it and urged policymakers to engage with legislation to offer frameworks that protect consumers and leave room for innovation in U.S. markets.

“There’s a regulatory gap that has been acknowledged by SEC Chair Gensler and the SEC staff, and I’m very worried that Prometheum is being used as a distraction to divert from the real regulatory progress that we need to make,” Seira said.

When pressed by Shin as to whether a Freedom of Information Act (FOIA) request issued by The Blockchain Association would reveal any untoward relations between the SEC and Prometheum, Kaplan dismissed the matter.

Kaplan’s Stance

Kaplan told The Defiant Prometheum built “an entirely new platform” based on the “SEC’s specific guidance for digital asset securities.”

“State-registered exchanges did not follow this path – and at this point, it seems that lines of business are likely far too hopelessly entangled to ever be able to come into compliance under the federal securities laws,” he said in a written statement.

Still, Kaplan was unable to say specifically which digital assets would be available for trading on Prometheum. He instead alluded to “several notable digital asset securities” that will be available “when we launch.”

“In regard to specific tokens, Prometheum makes a determination on which assets it can support based on multiple factors that include compliance, regulatory and other legal considerations,” said Kaplan.

Congressional Testimony

In 2020 Prometheum took a hard stance against the SEC’s lack of regulatory guidance for the crypto industry.

But Kaplan’s June 13 testimony showed the firm changed its position after it was granted approval to operate as a Special Purpose Broker-Dealer (SPBD) for digital asset securities.

Nebraska Representative Mike Flood (R) made light of the CEO’s change in stance. He also said that Prometheum’s SPBD falls short of addressing the core issue that there is no consistent definition of a digital asset security under current law.

Request For Disclosure

On June 15, the Blockchain Association sent a Freedom of Information Act (FOIA) request to the SEC seeking documents related to its dealings with Prometheum.

“We sent a FOIA request to try to uncover whether there are any relationships between the SEC and Prometheum beyond what would be normal for a broker-dealer applicant,” said Marisa Coppel, policy counsel at the Blockchain Association.

According to Coppel, Kaplan’s congressional testimony was misleading in terms of “painting a picture that there’s a clear regulatory path, and there just isn’t,” which has the potential to be damaging to the industry.

Coppel believes that “there’s also a recognition that something fishy might be going on,” and she hopes that the FOIA may shed light on the situation. The agency must respond to the request in 20 days or may petition for an extension.

‘Crypto Casinos Called To Task’

Not all oppose Prometheum’s rise to registered brokerage.

“Crypto casino exchanges are finally being called to task for defrauding and inducing massive losses among the poor and middle class of America,” Terence Yang, Managing Director at digital financial services firm, Swan Bitcoin, told The Defiant.

“Prometheum is an example of how you can register as a securities exchange,” said Yang, acknowledging, “Yes, it’s expensive, requires lawyers who actually know what they’re doing in terms of regulatory compliance and filling out paperwork correctly, and takes years. But it’s doable.”