Gensler must answer for Prometheum, ‘regulatory uncertainty’ over Ethereum, lawmakers say

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

In 2020, the SEC introduced a framework for so-called special purpose broker-dealers (SPBDs), a designation that allows firms to facilitate trading in digital asset securities. While Prometheum has not yet fully realized this vision, it is one of the only companies to have received such registration.

IN letter signed by House Financial Services Committee Chairman Patrick McHenry (R-SC), Congressman Bill Huizenga (R-MI), and Representative French Hill (R-AR), requested the SEC to turn over records and correspondence related to Prometheum and the status regulatory Ethereum.

Prometheum, as a digital securities market ecosystem, said on Monday that it does launched fiduciary services for Ethereum as a security, increasing doubts about the asset’s regulatory status among cryptocurrency market participants and worrying lawmakers.

“Prometheum’s announcement that it will offer ETH custody services (raises) the number questions about what is and what is not permitted activity for SPBD,” the legislators wrote. “Without answers … our concerns grow about the precedent set by the SEC, the Financial Industry Regulatory Authority (FINRA) and Prometheum.”

Last year, the House Financial Services Committee described the Prometheum crypto gambit as “shady”, arguing that the little-known crypto company was being used as a wedge by the SEC to show that existing securities laws were sufficient for crypto companies to remain in compliance.

As the agency faces pressure over how it regulates cryptocurrencies, Prometheum co-CEO Aaron Kaplan’s testimony before Congress last year was consistent with the SEC’s position that there is a path to compliance for cryptocurrency companies – as many other companies have argued that compliance is not feasible.

Republican lawmakers argued Wednesday that the SEC has refused to give them any answers in the Prometheum case. They argued that the SEC’s response last month did not sufficiently describe how the company would comply with its special purpose broker-dealer license.

In a lawsuit filed in April by Ethereum software giant Consensys, the company alleged The SEC has internally viewed Ethereum as a security for over a year. And in last month’s letter, McHenry accused SEC Chairman Gensler for lying about the case after dodging questions during congressional testimony last year.

Edited by Andrew Hayward