Is the SEC not playing fair?

The explosive case of crypto trading platform Prometheum is causing confusion and skepticism in the community. What it's about.

After a hearing in the U.S. House of Representatives on the regulation of digital assets is circulating a name: Prometheum. The role of the hitherto unknown crypto company in the last session of the Financial Services Committee raises some questions.

The meeting was designed to hear expert testimony on the state of regulation, including opinions from Circle chief Jeremy Allaire and Avalanche founder Emir Gün Sirer. On the Democratic side, Aaron Kaplan was invited to Prometheum represent. However, his appearance is considered extremely curious by some observers.

Trading platform without trading

Kaplan is CEO of Prometheum, a crypto trading platform that apparently no one in the industry had heard of. However, the company obtained a license from the SEC back in 2017, which is also advertised on its website. It also says Prometheum offers a solution for investing in "digital asset securities" - along with the necessary "investor protection."

The catch: with the current license, Prometheum cannot even offer the two largest and most popular cryptocurrencies, Bitcoin and Ether, on the platform. And by the way: according to the license, only "crypto securities" can be traded on the platform. Therefore, crypto projects would first have to register their tokens as securities with the SEC before Prometheum would be allowed to offer them for trading. So right now, the alleged crypto exchange is actually a trading platform with no real trading. Or as an employee of Paradigm's legal department puts it, "a bicycle without wheels".

But before the committee, Aaron Kaplan testified confidently that Prometheum was following a clear path of regulatory compliance and was in compliance with SEC guidance. But as revealed in the course of the hearing by questions from Rep. Mike Flood, Kaplan's company itself had criticized the lack of clarity on crypto-regulation just a few years ago. Where did the change of heart come from?

Questionable past

Kaplan's statements are causing skepticism in the crypto community. Inconsistencies are seemingly everywhere. Gemini founder Cameron Winkelvoss points out that on the day of the hearing SEC chief Gary Gensler claimed in an interview with the Wall Street Journal that "some crypto platforms have registered" and would recognize the current guidelines. Could he have meant Prometheum?

It also seems questionable why exactly this company was called out as a figurehead for compliance in the crypto sector. Especially since it has so far remained under the radar and Coinbase or Kraken could certainly have shared more experience from the day-to-day crypto business. Some observers point to ominous machinations in the background. Kaplan allegedly gave the impression during his statements that he read out prefabricated statements. Other observers in the room also claim to have seen several times that the CEO got notes from the audience.

This brings the company's past into focus. As Matt Walsh, partner at CastleislandsVC, discovered, Prometheum has dubious connections with Chinese brokers who were involved in various crypto scams. In addition, there is reportedly another connection to an insurer prosecuted by the SEC itself for fraud. Kaplan is also part of a law firm whose founder once worked at the SEC himself and allegedly falsified his resume. That says corporate lawyer and well-known cryptocurrency commentator Adam Cochran. Large parts of the Prometheum team are even made up of former employees of the financial authorities, as Cochran claims.

Prometheum - scandal in the making?

Whether a collection of curious coincidences or part of a poorly orchestrated agenda against the crypto sector, the Prometheum case seems truly bizarre. If the company's questionable connections turn out to be true, the Democrats' choice of witnesses, as well as the SEC's granting of a license to Prometheum, would demand an explanation. But the crypto community also has an interest in discrediting the SEC-compliant company.

The fact is that Prometheum's current regulatory course plays into the hands of the SEC.
If many cryptocurrencies were required to register as securities with the U.S. Securities and Exchange Commission, the company would not only regain significance, but most likely gain a monopoly position. This would make Prometheum one of the few, if not the only, licensed "broker-dealer" for crypto securities in the U.S., giving it enormous market power. So the company's self-interest in the regulatory debate cannot be ignored. Whether it will really be favored by the SEC, however, remains speculation for now. Meanwhile, it is unclear how Prometheum got its place in the hearing, given its controversial past. Where the curious saga will now lead is also unclear.

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