Prometheum: The New Beacon of Crypto Compliance in the Eyes of the SEC

Updated: 16 June 2023

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Prometheum, a relatively unknown crypto startup until recently, has now gained recognition as a model for regulatory compliance by the Securities and Exchange Commission (SEC). The firm, according to SEC Chair Gary Gensler, stands as a regulatory beacon amidst a sea of crypto “hucksters, fraudsters, and scam artists.”

Prometheum, headed by founder and co-CEO Aaron Kaplan, is a market ecosystem for digital asset securities, self-proclaimed as the first crypto-centric broker-dealer to register with the SEC, and a member of the Financial Industry Regulatory Authority (FINRA). It has set its sights on bridging the gap between traditional finance and crypto.

This week, Kaplan addressed the House Financial Services Committee, asserting that the SEC has provided a clear pathway to compliance. Contrary to many of his industry peers, he opposed recent U.S. legislation aimed at refining crypto regulations, stating that those advocating for new laws were unwilling to comply with current securities laws. This stand was not well-received by many within the digital assets industry, accusing Prometheum of echoing SEC and Gensler’s viewpoints to gain regulatory favor.

Prometheum has striven for years to create a compliant, regulated trading platform for digital asset securities that provides investor protections under federal securities laws

However, Kaplan maintains that their newfound regulatory status is the fruit of rigorous effort. “Prometheum has striven for years to create a compliant, regulated trading platform for digital asset securities that provides investor protections under federal securities laws,” he expressed, adding that this was a progressive step for the crypto industry showcasing a clear regulatory pathway.

The SEC Chair, Gary Gensler, upheld Prometheum’s compliance journey as evidence that digital asset firms can register, contrary to industry sentiment. Prometheum’s regulatory triumph coincides with Gensler’s stance that noncompliance is a choice, amidst increasing pressure from Republican lawmakers following enforcement actions against Binance and Coinbase.

Yet many in the industry have expressed bewilderment at how Prometheum obtained the SEC’s approvals and confusion as to what services it actually provides to crypto investors.

This Prometheum storyline has got to be the strangest thing I have seen in awhile in this industry. Has anyone actually looked into this? Beyond bizarre…

— Matt Walsh (@MattWalshInBos) June 14, 2023

Bitcoin and Ethereum Trading Not Supported

Notably, Prometheum’s platform currently doesn’t support Bitcoin and Ethereum trading, a fact highlighted by Rep. Mike Flood (R-NE). Kaplan attributed this to the company’s “crawl-walk-run-approach.” Furthermore, Prometheum has yet to disclose which assets it intends to list on its platform, stating that this would be determined internally based on what qualifies as a security.

Prometheum‘s sudden rise to regulatory grace has attracted criticism and scrutiny. Concerns were raised about the startup’s business model and its ability to facilitate trades of tokens from projects registered with the SEC. Critics have also questioned the SEC’s use of Prometheum, a relatively obscure player, to push back against a Republican-led market structure bill on digital assets.

Adam Cochran, a partner at MetaCartel Ventures DAO, among others, spotlighted Prometheum’s links to two China-affiliated firms: Wanxiang and Network 1 Financial Securities, to which Prometheum has paid over $1.5 million in sales commissions. Notably, Network 1 has faced regulatory actions in the past.

Prometheum’s Special Purpose Broker-Dealer (SPBD) and Alternative Trading System (ATS) registrations can be viewed on BrokerCheck, a FINRA operated website. Prometheum’s ATS was approved by the SEC in July of 2021, enabling it to facilitate orders for digital asset securities across 53 states and U.S. territories.

However, the firm’s operations as an SPBD are limited to 15 states, including New York, known for its rigorous BitLicense regime under the New York Department of Financial Services (NYDFS). Despite being based on Wall Street, Prometheum is not currently listed as a registered virtual currency business on the NYDFS’s main page.

In response to the recent developments, the Blockchain Association, a crypto industry advocacy group, has filed a Freedom of Information Act request seeking SEC documents related to Prometheum. While the group awaits the documents, the crypto industry continues to examine Prometheum’s sudden regulatory acclaim.