Gensler Must Answer for Prometheum, ‘Regulatory Uncertainty’ on Ethereum, Lawmakers Say

Republican lawmakers once again raised eyebrows over the controversial crypto firm Prometheum, demanding clarity from the U.S. Securities and Exchange Commission (SEC) on Wednesday over how the firm will comply with a novel framework from the agency.

The SEC introduced a framework for so-called special purpose broker-dealers (SPBDs) in 2020, and the designation allows firms to facilitate the trading of digital asset securities. Though it has not fully realized that vision yet, Prometheum is one of the sole firms to receive such a registration.

In a letter signed by House Financial Services Committee Chairman Patrick McHenry (R-SC), Rep. Bill Huizenga (R-MI), and Rep. French Hill (R-AR), demands were made for the SEC to hand over records and communications related to Prometheum and the regulatory status of Ethereum.

Prometheum, as a market ecosystem for digital asset securities, said Monday that it had launched custody services for Ethereum as a security, heightening jitters over the asset’s regulatory status among crypto market participants and perturbing the lawmakers.

#NEW: Chairman @PatrickMcHenry, @RepFrenchHill, and @RepHuizenga sent a letter to @SECGov Chair Gary Gensler demanding more information on Prometheum’s plans to custody ETH given regulatory uncertainty surrounding its classification.

📖 Read more 🔗https://t.co/AERelaU54M pic.twitter.com/VpvG8whH42

— Financial Services GOP (@FinancialCmte) May 22, 2024

“Prometheum’s announcement that it will offer custody services for ETH [raises] a number of questions regarding what are, and what are not, permitted activities for SPBDs,” the lawmakers wrote. “Without answers, […] our concerns about the precedent being set by the SEC, Financial Industry Regulatory Authority (FINRA), and Prometheum are growing.”

Last year, the House Financial Services Committee described Prometheum’s crypto gambit as “shady,” arguing the little-known crypto firm was being used by the SEC as a wedge to show that existing securities laws are sufficient for crypto firms to stay in compliance.

As the agency faces pressure over how it regulates crypto, Prometheum co-CEO Aaron Kaplan’s testimony before Congress last year aligned with the SEC’s stance that a pathway toward compliance exists for crypto firms—as many other firms have argued compliance isn’t feasible.

The Republican lawmakers argued Wednesday that the SEC has refused to provide them with any answers related to Prometheum. A response from the SEC last month failed to sufficiently describe how the firm will comply with its special purpose broker-dealer license, they argued.

In a lawsuit filed by the Ethereum software giant Consensys in April, the firm alleged the SEC has internally viewed Ethereum as a security for over a year. And in a letter last month, McHenry accused SEC Chair Gensler of lying about the matter after sidestepping questions during congressional testimony last year.

Edited by Andrew Hayward

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