Prometheum ETH Custody: Congress Seeks SEC-FINRA Records

In a move that has raised eyebrows in the crypto community, members of the United States Congress are demanding transparency from the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) regarding their communications about Special Purpose Broker-Dealer (SPBD) requirements. The concern centers on whether these organizations, in conjunction with crypto trading and custody services provider Prometheum, are setting a controversial precedent.

Role Played by Prometheum in the Process

Leading the charge are Chairman of the House Financial Services Committee Patrick McHenry and subcommittee heads Bill Huizenga and French Hill, all Republicans. In a letter to SEC Chair Gary Gensler, they expressed dissatisfaction with the SEC’s response to a previous inquiry dated March 26. 

This inquiry, supported by 48 members of the House Financial Services and Agriculture Committees, questioned the classification of Ether (ETH) as a security rather than a commodity, and the role played by Prometheum in custodying ETH as an SPBD.

SEC-FINRA Records

Gensler’s response to the March 26 letter was that he was “not privy to any details of Prometheum’s future business plans.” However, the congressmen believe that it is highly likely the SEC and FINRA discussed permitted activities for SPBDs during the Prometheum application process. 

They have now requested all nonpublic communications and records exchanged between the SEC and FINRA related to the SPBD application submitted by Prometheum, allowable SPBD activities, digital asset securities eligible for custody by an SPBD, and the regulatory classification of ETH. They have set a deadline of June 5 for a response.

Approval of Prometheum ETH Custody Service

The congressmen’s letter highlights concerns about a potential precedent being set by the SEC and FINRA’s actions. It is not uncommon for the SEC and FINRA, a self-regulatory organization registered by the SEC, to consult on rulemaking. 

However, the approval of the Prometheum ETH custody service as a security on May 17, despite its disputed classification, has added fuel to the controversy.

Future Business Plans are Now Current Business Plans

Simultaneously, McHenry and House Agriculture Committee chair Glenn Thompson resubmitted the March 26 letter to Gensler, stating that Prometheum’s “future business plans” have now become its “current business plans.” 

This move underscores the ongoing concerns about the regulatory framework governing digital assets and the transparency of the SEC and FINRA’s processes.

Prometheum has been a contentious figure in the crypto space since it received SPBD approval from FINRA in May 2023. Its CEO, Aaron Kaplan, has been vocal about supporting the regulation of crypto under existing securities laws, a stance that has not been well-received by many in the industry.