US lawmakers demand SEC-FINRA records on Prometheum ETH custody

Prometheum’s willingness to play along with the SEC’s ambitions for crypto regulation has stirred disapproval in many quarters.

Members of the United States Congress want to know what the Securities and Exchange Commission and Financial Industry Regulatory Authority (FINRA) were talking about when the SEC established Special Purpose Broker-Dealer (SPBD) requirements. They suspect the organizations and crypto trading and custody services provider Prometheum are setting an unwelcome precedent.

Chairman of the House Financial Services Committee Patrick McHenry and subcommittee heads Bill Huizenga and French Hill, all Republicans, stated in a letter to SEC Chair Gary Gensler that they were dissatisfied with the SEC’s response to a March 26 inquiry by 48 members of the House Financial Services and Agriculture Committees concerning Ether’s (ETH) classification as a security, rather than a commodity, and Prometheum’s intent (since realized) as an SPBD to custody ETH.

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Gensler responded to the March 26 letter by saying he was “not privy to any details of Prometheum’s future business plans.” The congressmen, concerned about a potential precedent, told Gensler:

“The likelihood that, throughout the course of Prometheum’s SPBD application process and eventual approval, the SEC and FINRA likely discussed permitted activities for a SPBD is strong.”

Therefore, the congresspeople are now asking for all nonpublic communications and records exchanged between the SEC and FINRA concerning Prometheum’s SPBD application process, allowable SPBD activities, digital asset securities eligible to be custodied by an SPBD and the regulatory classification of ETH. They set a June 5 deadline for a response.

It is not unusual for the SEC and FINRA, a self-regulatory organization registered by the SEC, to consult on rulemaking. Prometheum launched a custody service for ETH as a security on May 17, regardless of its disputed classification.

McHenry and House Agriculture Committee chair Glenn Thompson resubmitted the March 26 letter to Gensler simultaneously with the writing of the new letter, “now that Prometheum’s ‘future business plans’ are its current business plans.”

Prometheum has been controversial since it received SPBD approval from FINRA in May 2023. Its CEO, Aaron Kaplan, expressed his support at a Congressional hearing for regulating crypto under existing securities laws, upsetting many in the crypto industry. Kaplan told Cointelegraph, “Prometheum was purpose-built to comply with federal securities laws and create the first digital asset security trading platform subject to those laws.”

In June, crypto lobby group Blockchain Association filed a Freedom of Information Act request seeking SEC documents relating to Prometheum. “In the midst of aggressive SEC enforcement, Prometheum gets approval for first-of-its-kind Special Purpose Broker-Dealer (SPBD) for digital asset securities. Suspicious…,” association counsel Marisa Tashman Coppel tweeted at the time.