The following is a guest post from Hamilton Keats, CEO and co-founder of Krayon Digital.
In an attempt to demonstrate that thereâs a path forward for crypto firms within the existing regulatory framework, the SEC extended an invitation to Prometheum to the House Financial Services Committee hearing on digital assets.
This firm, relatively unknown until now, is being held up as an example of compliance by the SEC but Prometheumâs background is sketchy. Itâs alleged that the firm is connected to multiple crypto scams and possibly funded by the Chinese Communist Party (CCP) đ˛.
The timing of this hearing dovetails with a season of intense scrutiny by the SEC against other firms who have strived regulatory dialogue â firms who arguably deserve a better chance than Prometheum at operating within a compliant framework.
Letâs unpack this bizarre series of events
On June 13th, the House Financial Services Committee held a hearing on âThe Future of Digital Assets: Providing Clarity for the Digital Asset Ecosystem.â
Aaron Kaplan, Co-CEO of Prometheum, was invited to testify before the committee. Until this week, Prometheum was relatively unknown in the crypto space.
During Kaplanâs testimony, it became evident that his responses were scripted. Committee members and viewers alike questioned his credibility; his answers echoed the SECâs existing narrative. As Scott Johnsson remarked:
âWow, Prometheumâs CEO, whose sole credential is heading a special purpose ATS/BD for digital securities, seems to have a lot of opinions on unrelated topics like banking principles/stablecoins-or at least his prewritten notes curiously respond to every Dem question.â
Who exactly is Prometheum and why are they relevant to this committee?
In the midst of the SECâs litigation case against Coinbase and Binance, Prometheum received approval for a first-of-its-kind Special Purpose Broker-Dealer (SPBD) license for digital asset securities. According to Kaplan, this license represents a compliant path for crypto firms, suggesting no need for updated regulations and securities laws.
Committee member John Rose disputed Arron Kaplanâs statements:
âGenslerâs approval of this one special purpose broker dealer licence does not mean that the current system is working. Why? Because an ATS cannot facilitate trading for any of the unregistered securities not offered under a valid exemption. Additionally, Gensler and the Democrats and apparently Mr Kaplan allege that nearly all tokens are unregistered securities so this approval does nothing for retail investors and the general public⌠Isnât it correct that there currently arenât any registered digital asset securities with real customer demand and liquidity. For example, can an ATS offer Solana or Cardano, which the SEC has recently alleged are unregistered securities, to retail, non-accredited investors on its ATS today?â
The answer is a resounding no. However, the proposed legislation would allow an ATS to list and trade digital assets alongside payment-stable coins and digital commodities.
It gets worse
A special purpose broker-dealer cannot currently custody both digital asset securities and commodities on the same platform on behalf of retail investors. With the existing law classifying digital assets either as securities or commodities, it renders the SPBD license essentially useless.
Moreover, the SEC has suggested that 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.
The existing regulation doesnât enable licensed broker-dealers to operate in the digital asset space. Representative Mike Flood rebutted Prometheumâs statements during the hearing as purely nonsensical. Prometheumâs clients canât even trade BTC and ETH, which comprise 60% of the digital asset market.
As Mike Flood put it:
âIf the current system is working, why canât your customers trade the most popular and widely-used digital assets?â
The obvious answer is that itâs not, and Prometheumâs claims that changes to legislation arenât required just donât make sense.
Why is Prometheum obstructing regulatory improvements?
If Prometheum allegedly works 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: Prometheumâs trading L1 has its token thatâs already been sold to members of the Chinese Communist Party (CCP) (laughing emoji).
Prometheum has raised almost $50m in funding to date. Throughout the fund raising process, they used a New Jersey-based boutique investment bank, Network 1 Financial Securities â a firm with an unscrupulous track record, including over 20 regulatory or civil actions against them, and has further ties to the CCP.
Maybe we should assume credible securities experts manage PrometheumâŚ
Well, thatâs a no again. Prometheum is run by the Kaplan family, including Aaron and Benjamin Kaplan, lawyers by trade who attended a now unaccredited law school before joining their fatherâs law firm.
How did a family of lawyers become the first firm approved for an SPBD license and end up on the committee testifying in favor of the SECâs current approach to crypto-regulations?
Why arenât real businesses being given a fair shot?
Apparently, Hiring ex-SEC staffers goes a long way to getting licensed. Prometheumâs team comprises Rosemarie Fanelli, a former NYSE and FINRA employee; John Tornatore from CBOE; and Joseph Zangri, their Chief Compliance Officer previously served as 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 genuine progress of blockchain technology and digital assets in the face of current regulation? Why arenât real businesses like Coinbase and Kraken given a real shot?
Hamilton Keats is CEO and co-founder of Krayon Digital, a provider of MPC-based digital asset wallets for SMEs. Prior to building Web3 infrastructure with Krayon, Hamilton co-founded Platform One, a London-based wealth management platform, and worked at HSBC and DVB Bank. He holds a BSc degree in physics from the Imperial College London. TwitterÂ
