Prometheum, the crypto industry’s new punching bag, seeks a chance.

Crypto entrepreneur Aaron Kaplan, who was added to the witness list for a House of Representatives hearing on the future of the industry, used his time to praise the U.S. Securities and Exchange Commission (SEC) as the most capable regulatory agency in the financial markets. This statement caused controversy within the industry, as many believe that the SEC has been hindering the growth of the crypto industry. Kaplan’s company, Prometheum Inc., claims that no new crypto rules are necessary, and they plan to demonstrate this, despite some issuers refusing to trade their tokens on their platform.

However, critics argue that Prometheum, as an obscure startup with no track record, is not complying with securities laws and is overlooking important questions. Nonetheless, Prometheum has recently registered as a special purpose broker-dealer for digital assets, allowing them to take custody of their customers’ crypto. They have also registered as an alternative trading system (ATS), which is a less regulated version of a national exchange.

Industry experts and lawyers have expressed doubts about Prometheum’s plan to handle the trading of registered or exempted crypto securities. The SEC requires Prometheum, as a broker-dealer, to analyze and document whether a digital asset is a security offered and sold under registration or an exemption. Critics argue that Prometheum’s status is meaningless until there are enough crypto assets to trade.

Prometheum has submitted a list of securities that they claim to be able to handle, including Flow (FLOW), Filecoin (FIL), The Graph (GRT), Compound (COMP), and CELO from the Celo platform. The SEC did not object to these assets when they were submitted.

• Solana rallies 15%, signaling renewed momentum.
• Bitcoin price hits $31K as monthly, quarterly close approaches.
• Here are five effective marketing strategies for crypto casinos that boost revenue.

Prometheum is now waiting for SEC approval to clear and settle transactions, which they expect to receive soon. This approval could determine whether a digital assets platform can operate under existing U.S. oversight.

High stakes

If the SEC allows Prometheum to proceed, it challenges the belief that crypto companies cannot operate under the current interpretation of securities law. On the other hand, if the SEC blocks Prometheum, it reinforces the argument that U.S. regulators are making it impossible to run a crypto firm in the country.

The decision regarding Prometheum is one of several potential turning points for the crypto industry in the U.S., including the Ripple Labs Inc. court decision, the outcome of lawmakers’ discussions on a crypto oversight bill, and the SEC’s disputes with Coinbase Global Inc. and Binance.

After receiving broker-dealer approval, Prometheum has been secretive about the digital asset securities to be traded on their platform. However, they had previously submitted the five token projects mentioned in their ATS filings.

“I’m not trying to bring, like, the eye of Mordor on these tokens,” Kaplan said.

One of the most prominent of them, Filecoin, is itself objecting to the idea that the token FIL can be traded as a security.

“Filecoin is an open-source, decentralized file storage network with thousands of contributors worldwide, storing humanity’s most important information,” a spokesperson for Protocol Labs, the company behind Filecoin, told blockchain. “It is not a security.”

That pushback doesn’t matter to Prometheum’s business plan, Kaplan said, because he said an ATS doesn’t need to work with the issuer of an asset in order to list it.

“As an ATS, you can choose which assets you support based on the needs of your customers,” said Kaplan, who has worked as a securities lawyer.

And the SEC is already backing up the position that FIL and others – including FLOW – are securities, because it’s argued as much in its enforcement actions against other crypto companies.

SEC spokespeople didn’t respond to a request to comment on Prometheum’s status, or the agency’s views on tokens the company may seek to trade.

Kaplan hasn’t been overly specific about how his company will satisfy SEC disclosure demands regarding the assets it’ll handle. “We will meet all our disclosure requirements,” he said.

Industry critics argue that to be legitimate securities, issuers have to file certain updated information to the SEC, and a third party trading platform can’t do it for them. Marisa Tashman Coppel, senior counsel at the Blockchain Association, an industry lobbying organization, was among those contending that Prometheum’s position is bogus.

“Prometheum’s ATS will not be able to trade any tokens – despite their claims to the contrary – unless projects first register with the SEC,” she posted on Twitter.

Another crypto ATS – OTC Markets – agrees that a securities issuer has to provide the information itself. “As the market operator, our role is to determine that the issuer disclosure meets the requirements for public trading, but we couldn’t possibly generate that disclosure ourselves,” said Cass Sanford, deputy general counsel.

Crypto projects that are fighting against being labeled as securities, such as Filecoin, won’t be leaping forward to comply with securities regulations.

Capitalists

Prometheum currently employs about 50 people, Kaplan said, and it will have more capital needs as it grows. He said the company could be open to acquisition (“Capitalists will be capitalists,” he said), and a bigger firm grabbing its potentially valuable registration status could further amplify the urgency of what could happen with the company.

Meanwhile, Kaplan has been accused of being a puppet of SEC Chair Gary Gensler, widely seen by the industry as seeking to throttle U.S. crypto into lifelessness. When Kaplan suddenly appeared in the House hearing, the industry was abuzz with speculation that the SEC had put him there. He said it was the staff of Rep. Maxine Waters (D-Calif.) that invited him. He said he’s never met Gensler and has never had any contact with the SEC outside of the typical registration process.

A U.S. senator, Tommy Tuberville (R-Ala.), also accused his company of being a tool of Chinese investors. Kaplan responded, saying that while HashKey Group, the digital assets and blockchain arm of Chinese conglomerate Wanxiang Group, still owns about 20%, it has no access to the company’s data or technology. He said the SEC, which investigated and subpoenaed the company for information on this relationship, has recently sent a letter to Prometheum stating the question is resolved.

The individual owner with the biggest stake of Prometheum is Kaplan’s father, Martin Kaplan, who co-founded a securities law firm in New York. And Aaron Kaplan’s brother, Benjamin, is the other CEO. The three men’s stakes in the company represent the bulk of Prometheum, making it a kind of family business.

Aaron Kaplan has taken the role as public advocate for the company and has largely abandoned corporate diplomacy for contentious arguments, such as those he made in testimony on Capitol Hill or in a podcast debate this week with a lawyer who represents an investment firm, Paradigm.

“The investor protections of the federal securities laws provide a path forward for the industry to move beyond what occurred in 2022, which was really the result of people operating on unregulated financial intermediaries,” he told blockchain. “Give us an opportunity to show what we could do.”

Edited by Nikhilesh De.