Prometheum, the first crypto firm to secure approval from regulators to custody digital assets as securities in the United States, is now embroiled in a political firestorm. House Financial Services Committee Chair Patrick McHenry and other members of Congress have demanded transparency regarding the approval process for Prometheum and have raised questions about the firm’s reported ties to the Chinese Communist Party. McHenry highlighted the fact that the SEC introduced a new class of special purpose broker-dealers (SPBD) for the custody of digital asset securities in December 2020 but did not approve a single application until Prometheum received approval in May 2023.
The timing of the approval raises concerns that it was aimed at demonstrating that legislation is not needed for the regulation of digital asset securities. McHenry also questioned why FINRA chose to approve Prometheum, a firm with no operating history and no track record of serving customers, over other applications it received. The approval also raises national security and data privacy concerns due to Prometheum’s previous partnerships and its Chinese ownership. Prometheum had partnered with Shanghai Wanxiang Blockchain Inc., a company with ties to the Chinese Communist Party.
In response, Prometheum stated that its former relationships with Wanxiang had been reviewed by the SEC and CFIUS and that the company’s technology is compliant with federal securities laws. Prometheum’s CEO, Aaron Kaplan, previously expressed confidence in their compliance with the SEC’s regulations and the transition towards a regulated digital asset securities marketplace. Kaplan emphasized the need for compliance under federal securities laws and suggested that many existing crypto institutions would need to rebuild their technology to operate in this regulated environment.
The controversy surrounding Prometheum’s approval and ownership highlights the ongoing debate about the regulatory framework for digital assets and the involvement of foreign entities in the industry.