Crypto agency Prometheum’s co-founder and co-CEO Aaron Kaplan testified earlier than the U.S. Monetary Providers Home Committee on June 13
The “full-service market” crypto brokerage gained the highlight after Kaplan took a pro-SEC stance in his testimony, in stark distinction to the vast majority of trade leaders.
Kaplan’s testimony set the Twitter house ablaze with curiosity concerning the little-known crypto platform, with rumors swirling about its ties to the Chinese language Communist Occasion.
Prometheum deems current guidelines adequate
Studying from his ready statements, Kaplan mentioned there was no want for regulatory readability in crypto. His feedback contradicted these of Coinbase and the crypto trade at massive, who’ve been demanding extra readability for years.
The Federal Securities Legal guidelines, which have been “tried and examined for nearly 90 years,” are adequate to control crypto, Kaplan said. He added:
“The important level at hand is just not about kind of regulation and even new regulation, however quite the applying of the present regulatory frameworks to digital belongings.”
Kaplan went on to say that crypto platforms that argue for brand new legal guidelines are “merely not prepared to conform” with the present legal guidelines and laws.
He added that new laws is “not in the very best curiosity” of traders and the crypto trade. Bringing in new laws would take years and traders can be uncovered to reckless, illegal platforms within the meantime, he argued.
Kaplan pressured that there’s a “compliant path ahead for crypto,” which the U.S. Securities and Trade Fee has “clearly laid out.”
Senator Mike Flood, nonetheless, slammed Kaplan, saying his argument that the trade doesn’t want any new laws “simply doesn’t make sense.” Apart from, Flood additionally highlighted that Prometheum itself was asking for extra regulatory readability till April 2021.
Confirming with Kaplan that Prometheum customers can’t commerce Bitcoin or Ethereum, the 2 hottest cryptocurrencies that management almost 60% of the market, Flood added:
“If something, the truth that Prometheum’s prospects can’t commerce a number of the hottest digital belongings is an illustration of the broader downside.”
The folks behind Prometheum
Aaron and Benjamin Kaplan co-founded Prometheum in 2017. As of March 2022, the agency had raised $42 million in funding.
Prometheum is noteworthy due to its two subsidiaries which have obtained regulatory approval.
In October 2022, Prometheum Ember ATS grew to become an SEC-registered various buying and selling system (ATS) for digital belongings.
In Could 2023, Prometheum Ember Capital grew to become the primary regulated crypto custodian after it obtained approval from the Monetary Business Regulatory Authority. Nevertheless, Prometheum Ember Capital has not obtained approval for clearing and settling trades, which signifies that it can’t successfully permit its customers to commerce crypto, in line with a Bloomberg report. The agency has additionally not disclosed the tokens it’ll assist.
It’s value noting that Prometheum itself created and partially bought native Ember tokens to its Chinese language affiliate, as per SEC filings.
The co-founders, who additionally function co-CEOs at Prometheum, are listed as attorneys on the finance-focused regulation agency Gusrae Kaplan, as crypto analyst Adam Cochran identified in a Twitter thread. Moreover, Prometheum chairman Martin H. Kaplan is a managing member of Gusrae Kaplan.
Cochran additionally famous that Prometheum’s chief regulatory officer Rosemarie Fanelli beforehand labored for 13 years at FINRA, which is a self-regulatory physique. Moreover, Prometheum’s chief compliance officer Joseph Zangri beforehand labored as a senior enforcement legal professional on the SEC.
Moreover, John Tornatore, Prometheum’s head of enterprise improvement, labored for 10 years with the Chicago Board Choices Trade.
Cochran speculated that the shut ties of those senior Prometheum executives with regulators may have helped the agency safe its approvals.
Twitter hypothesis and uproar
Cochran theorized that the SEC is probably giving Kaplan a “candy regulatory deal in change for participating in the way in which the SEC wished to.” He additionally speculated that maybe Prometheum is making an attempt to “push an agenda” to have sure cryptocurrencies labeled as securities and to turn into the one regulated platform to seize the market.
Lastly, Cochran speculated that it’s doable Prometheum is run by “grifters” who raised cash from “sketchy sources” that wish to proceed swindling. He concluded:
” I don’t know which one it’s, however one thing is rotten right here.
With all of the efforts Coinbase, Kraken and different respected companies have put into placing their finest foot ahead – it’s not possible to consider this sketchy company acquired the inexperienced gentle.”
Common associate at Fortress Island VC Matt Walsh said Prometheum’s story is “the strangest factor I’ve seen shortly on this trade.”
Different critics pointed out that Prometheum’s strategy “can’t work as marketed,” calling it a “bicycle with no wheels.” For any token to be listed on a licensed ATS, it must be first registered with the SEC as a safety.
Rodrigo Seira, particular counsel at Paradigm, defined:
“Prometheum’s ATS gained’t be capable of commerce ANY TOKENS until tasks first register the tokens with SEC.
And as now we have identified, there are successfully no tokens registered with the SEC as a result of the present regime is just not a viable possibility.”
Primarily, the crypto neighborhood is plagued with doubt as as to if Prometheum is the appropriate agency to information crypto regulation. Not solely are folks questioning the integrity of the agency itself, however in addition they doubt the credentials of Aaron Kaplan, who graduated from a regulation faculty that has now misplaced its accreditation.
Potential ties to the CCP
China-based Wanxiang Blockchain, and its affiliate HashKey have been its “strategic companions and joint ventures,” in line with SEC filings of Prometheum in 2019.
As per Kaplan’s ready testimony, Prometheum raised funding from HashKey in 2018.
In December 2018, as a part of the funding, Prometheum and HashKey determined to collectively launch a crypto buying and selling system, Kaplan mentioned. Nevertheless, inside a yr, Prometheum realized the necessity to finish the three way partnership, he mentioned. The partnership was formally terminated in November 2021.
Regardless of severing the partnership, Wanxiang nonetheless controls 20% of Prometheum, Kaplan testified. Nevertheless, Kaplan assured senators that no Chinese language entity has any entry to its code, expertise, or information.
As Congressman Blaine Lutkemeyer identified on the listening to, Wanxiang Blockchain, a spin-off of the Wanxiang Group, has sturdy ties to the Chinese language Communist Occasion. The group’s founder and chairman Lu Guanqi, who died in 2017, reportedly had favorable relations with the Communist Occasion and even President Xi Jinping. The group’s current chief, Lu Weiding, is reportedly equally near the ruling get together.
Moreover, Walsh identified that Prometheum has paid over $1.5 million as gross sales commissions to a New Jersey-based agency known as Community 1 Monetary Securities, which additionally has Chinese language associates and has been the goal of over 20 regulatory and civil actions.