House Committee questions SEC's decision to approve Prometheum Broker

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A complex ownership structure Related news

The US Securities and Exchange Commission (SEC) has recently come under scrutiny from members of the House Financial Services Committee (HFSC). These politicians, led by committee chair Patrick McHenry (R-NC), have expressed concern over the SEC’s approval of Prometheum, a relatively unknown crypto broker. The Republicans on the committee have labeled this approval as “shady” and vocally question the timing of this decision given the broader context of cryptocurrency regulation in the United States.

????Letters from Congress on SHADY APPROVAL of #Prometheum receiving an SPBD (Special Purpose Broker-Dealer) license. https://t.co/E8KLEDoFZ0

— Digital PerspectivesPermaBull???? (@DigPerspectives) August 15, 2023

A significant amount of controversy surrounds the role of the Financial Industry Regulatory Authority (FINRA). Despite being overseen by the SEC, FINRA approved Prometheum as the first-ever Special Purpose Broker-Dealer (SPBD) for digital assets. In particular, this approval took place more than two years after the initial regulatory framework was adopted in December 2020. During this period, no other cryptocurrency exchange has obtained approval under this framework. The HFSC raises eyebrows at this, as it is noteworthy that no other applicants, some with extensive surgery histories, were approved before Prometheum.

Last week, in a letter addressed to the SEC, the HFSC expressed concern and suggested that the timing of this approval could be strategically designed to demonstrate that existing legislation is adequate and that a new regulatory framework for digital asset securities is not needed. The letter, made public Tuesday, takes a critical look at the SEC’s decision-making process.

The timing of the approval raises concerns that it was intended to demonstrate that legislation is not necessary as there is a workable regulatory framework for the custody of securities of digital assets

It is worth noting that in the same month FINRA approved Prometheum, the HFSC held hearings specifically related to digital asset law. The goal was to create definitive guidelines for the types of crypto assets over which the SEC would have jurisdiction. SEC Chairman Gary Gensler, who argues that current securities laws are adequate and clearly defined, has used Prometheum’s approval to illustrate that there is a clear path for existing companies to achieve compliance.

To add to the intrigue, Prometheus, despite its claims of being a revolutionary solution to regulated digital asset offerings, it has yet to serve a single customer, according to the HFSC. The commission also highlights that Prometheum has been non-transparent and has avoided disclosure of the digital asset securities it plans to support on its platform.

A complex ownership structure

Complicating matters further is Prometheum’s ownership structure. The HFSC’s letter has pointed to potential national security concerns because Prometheum is 20% owned by international conglomerate Wanxiang. According to the commission, Wanxiang has important ties to the Chinese Communist Party (CCP). However, a spokesperson for Prometheum has refuted this by stating that the SEC and the Committee on Foreign Investment in the United States (CFIUS) have reviewed Prometheum’s past ties to Wanxiang and its affiliates.

As a final note, the HFSC has required the SEC and FINRA to disclose all documents and communications related to the approval of Prometheum. They’ve set a deadline for this reveal: 5 p.m. on August 22, which is exactly one week from today.

In this unfolding situation, the HFSC is clearly pushing for transparency and clarity, challenging what they view as a dubious SEC approval process.

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