Prometheum, the only SEC-registered digital asset service provider in the US, will offer its first crypto product in March: Ethereum custody, according to a report by Fortune.
It is potentially big news for the industry. A successful launch could end up clarifying Ethereum’s status as a security, a definition that the industry denies. The Securities and Exchange Commission (SEC) has long been ambiguous about whether it considers the coin a security offering.
Prometheum is touted by the SEC as a model to emulate for industry compliance, but there are many questions around the origins of the company and its links to federal enforcement agencies.
Chairman Gensler discussing the path forward for digital assets firms mentions that an “entity filed as a special purpose broker-dealer and got registered that way”. Prometheum Capital is the first and only SPBD. See our mention at 7:04: https://t.co/kT3AfTlIou
— Prometheum (@PrometheumInc) June 6, 2023
Prometheum’s SEC Compliance Path
In May 17, 2023, Prometheum received approval from the SEC-adjacent Financial Industry Regulatory Authority (FINRA) to operate as a Special Purpose Broker-Dealer (SPBD).
The SEC established the SPBD framework in 2021 to demonstrate that existing securities laws applied to crypto companies. To date, only Prometheum has approval. The SPBD designation green-lit the company to custody crypto.
Then on January 10, 2024, Prometheum subsidiary Prometheum Capital LLC received FINRA approval to clear and settle crypto trades for its affiliate, another Prometheum subsidiary: Prometheum Amber ATS. At the same time, it announced it would launch its custody platform in Q1 this year.
Today’s news means that Prometheum is right on schedule.
Prometheum Amber ATS was approved as an ATS by FINRA back in July, 2021, and launched in October 2022. ATS stands for “alternative trading system,” an SEC term for a registered non-exchange trading venue.
An ATS is more loosely regulated than a national exchange. Prometheum has interpreted this as a green-light to sell crypto products under the premise that it is not subject to the same disclosure requirements. It lists the assets its target market wants, leaving it to the assets’ issuers to hash it out with regulators.
Many see the choice of Ethereum as a first product a controversial one, due to the SEC’s inability under Chairman Gary Gensler to provide clarity on whether the coin is a security. Complicating matters, former SEC Director of Corporate Finance William Hinman proclaimed in 2018 that Ether wasn’t a security. That same year, three years before he took up his post at the SEC, Gensler had agreed.
How the industry views Prometheum
Given the industry’s repeated insistence that existing securities laws do not offer a suitable framework to regulate crypto, and that the SEC has failed to provide clear guidelines on registration, it’s unsurprising that many of its players are skeptical of Prometheum.
Gemini co-founder Tyler Winklevoss pointed out on X last year that the so-called crypto company had not launched a product in the first six years of its existence. Democrat US Congressman Ritchie Torres echoed his observation.
Winklevoss also highlighted the fact that its staff comprised former SEC and FINRA people.
Here are some highlights that set Prometheum apart:
-Failed to launch a product in 6 years
-Hired multiple former SEC and… https://t.co/YsgUCcIjM5
— Tyler Winklevoss (@tyler) June 15, 2023
Legal counsel Rodrigo Seira at crypto investment firm Paradigm contradicted Prometheum’s claim that ATS status enables it to sell unregistered securities.
He tweeted: “an ATS cannot facilitate trading for any unregistered securities not offered under a valid exemption.”
While the testimony spends a lot of effort distancing Prometheum from its Chinese investors, it fails to mention a CRITICAL fact:
an ATS cannot facilitate trading for any unregistered securities not offered under a valid exemption—which is exactly what they allege tokens are
— Rodrigo (@RSSH273) June 13, 2023
In fact, the first anybody had ever heard of Prometheum was when founder and CEO Aaron Kaplan testified before the House Financial Services Committee in June last year.
He appeared to be parroting SEC narratives, according to Matt Walsh, General Partner at crypto VC firm Castle Island Ventures:
Then Prometheum’s CEO somehow gets a seat in front of Congress yesterday and starts reading off pre-written notes clearly coordinating narratives with Democratic members of Congress (or the SEC)https://t.co/ZauMxJcBn5
— Matt Walsh (@MattWalshInBos) June 14, 2023
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