Members of the United States Congress are seeking answers from the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) regarding their discussions on the establishment of Special Purpose Broker-Dealer (SPBD) requirements. They are concerned that the SEC, FINRA, and crypto trading and custody services provider Prometheum are setting a concerning precedent.
Chairman of the House Financial Services Committee, Patrick McHenry, along with subcommittee heads Bill Huizenga and French Hill, all Republicans, expressed their dissatisfaction with the SEC’s response to a previous inquiry from 48 members of the House Financial Services and Agriculture Committees. The inquiry questioned the classification of Ether (ETH) as a security instead of a commodity, as well as Prometheum’s intentions to custody ETH as an SPBD. SEC Chair Gary Gensler responded by stating that he was not aware of the details of Prometheum’s future plans. However, the congressmen, concerned about the potential precedent being set, urged Gensler to provide all nonpublic communications and records exchanged between the SEC and FINRA regarding Prometheum’s SPBD application process, allowable activities, eligible digital asset securities, and the regulatory classification of ETH. They set a deadline of June 5 for a response.
It is not uncommon for the SEC and FINRA, a self-regulatory organization registered by the SEC, to collaborate on rulemaking. Despite the disputed classification, Prometheum launched its custody service for ETH as a security on May 17.
In light of Prometheum’s current business plans aligning with its previously stated future plans, McHenry and House Agriculture Committee chair Glenn Thompson resubmitted the March 26 letter to Gensler alongside the new letter.
Prometheum has been a subject of controversy since receiving SPBD approval from FINRA in May 2023. The CEO, Aaron Kaplan, expressed his support for regulating crypto under existing securities laws during a Congressional hearing, which caused dissatisfaction within the crypto industry. Kaplan stated that Prometheum was specifically designed to comply with federal securities laws and create the first digital asset security trading platform subject to those laws.
In June, the crypto lobby group Blockchain Association filed a Freedom of Information Act request to obtain SEC documents related to Prometheum. The association’s counsel, Marisa Tashman Coppel, expressed suspicion about Prometheum’s SPBD approval in the midst of aggressive SEC enforcement.
The SEC now finds itself facing a formidable legal battle against the cryptocurrency industry, similar to the clash between Godzilla and Kong.