Co-founder and co-CEO of crypto firm Prometheum, Aaron Kaplan, testified before the US Financial Services House Committee on June 13
The “full-service market” crypto brokerage came under the spotlight after Kaplan took a pro-SEC stance in his testimony, in stark contrast to the majority of the industry leaders.
Kaplan’s testimony inflamed the Twitter space with curiosity about the little-known crypto platform, with rumors of its ties to the Chinese Communist Party.
Prometheum considers existing rules sufficient
Kaplan read out his prepared statements and said there was no need for regulatory clarity in crypto. His comments contradicted those of Coinbase and the crypto industry at large, which have been demanding more clarity for years.
The Federal Securities Laws, which have been “tried and tested for nearly 90 years,” are enough to regulate crypto, Kaplan said. He added:
“The essential point at issue is not about more or less regulation or even new regulation, but rather the application of the existing regulatory frameworks to digital assets.”
Kaplan continued that crypto platforms advocating for new laws are “simply unwilling to comply” with existing laws and regulations.
He added that new legislation is “not in the best interest” of investors and the crypto industry. New legislation would take years to pass and investors would be exposed to reckless, illegitimate platforms in the meantime, he argued.
Kaplan stressed that there is a “compliant path forward for crypto,” which the U.S. Securities and Exchange Commission has “clearly laid out.”
Senator Mike Flood, however, criticized Kaplan, saying his argument that the industry doesn’t need new legislation “just doesn’t make sense.” In addition, Flood also emphasized that Prometheum itself was asking for more regulatory clarity until April 2021.
Flood confirmed with Kaplan that Prometheum users cannot trade Bitcoin or Ethereum, the two most popular cryptocurrencies that control nearly 60% of the market, adding:
“The fact that Prometheum’s clients are unable to trade some of its most popular digital assets is at least an illustration of the broader problem.”
The people behind Prometheum
Aaron and Benjamin Kaplan co-founded Prometheum in 2017. By March 2022, the company had raised $42 million in funding.
Prometheum is notable for its two regulatory-approved subsidiaries.
In October 2022, Prometheum Ember ATS became an SEC-registered alternative trading system (ATS) for digital assets.
In May 2023, Prometheum Ember Capital became the first regulated crypto custodian after receiving approval from the Financial Industry Regulatory Authority. However, Prometheum Ember Capital has not received approval to clear and settle transactions, meaning it cannot effectively allow its users to trade crypto, according to a Bloomberg report. The company has also not disclosed which tokens it will support.
It’s worth noting that Prometheum itself created and partially sold Ember tokens natively to its Chinese subsidiary, according to SEC filings.
The co-founders, who also serve as co-CEOs at Prometheum, are listed as lawyers at the finance-focused law firm Gusrae Kaplan, as crypto analyst Adam Cochran noted in a Twitter. thread. In addition, Prometheum Chairman Martin H. Kaplan is a leading member of Gusrae Kaplan.
Cochran also noted that Rosemarie Fanelli, Prometheum’s chief regulatory officer, previously spent 13 years at FINRA, a self-regulatory agency. In addition, Prometheum’s Chief Compliance Officer, Joseph Zangri, previously served as a senior enforcement attorney at the SEC.
In addition, John Tornatore, Prometheum’s head of business development, spent 10 years at the Chicago Board Options Exchange.
Cochran speculated that these senior Prometheum executives’ close ties to regulators could have helped the company secure its approvals.
Twitter speculation and uproar
Cochran theorized that the SEC may be giving Kaplan a “sweet regulatory deal in exchange for participating the way the SEC wanted.” He also speculated that Prometheum may be trying to “push an agenda” to label certain cryptocurrencies as securities and become the only regulated platform to take the market by storm.
Finally, Cochran speculated that it’s possible that Prometheum is being run by “grifters” who have collected money from “sketchy sources” who want to continue the scam. He concluded:
I don’t know which one it is, but something isn’t right here.
With all the efforts Coinbase, Kraken and other reputable companies have put in to put their best foot forward, it is impossible to believe that this sketchy agency has been given the go-ahead.
General partner at Castle Island VC Matt Walsh said Prometheum’s story is “the strangest thing I’ve seen in this industry in a while”.
Other critics orphan explains that Prometheum’s approach “cannot work as advertised”, calling it a “wheelless bicycle”. In order for a token to be listed on a licensed ATS, it must first be registered with the SEC as security.
Rodrigo Seira, Special Counsel at Paradigm, explains:
“Prometheum’s ATS CANNOT trade TOKENS unless projects first register the tokens with SEC.
And as we noted, no tokens are actually registered with the SEC because the current regime is not a viable option.
Essentially, the crypto community is plagued with doubts about whether Prometheum is the right company to guide crypto regulation. Not only do people question the integrity of the company itself, but they also question the credentials of Aaron Kaplan, who graduated from a law school that has now lost its accreditation.
Possible ties to the CCP
China-based Wanxiang Blockchain and its subsidiary HashKey were its “strategic partners and joint ventures,” according to SEC filings from Prometheum in 2019.
According to Kaplan’s prepared testimony, Prometheum raised funds from HashKey in 2018.
In December 2018, as part of the investment, Prometheum and HashKey decided to jointly launch a crypto trading system, Kaplan said. However, within a year, Prometheum realized the need to end the joint venture, he said. The collaboration formally ended in November 2021.
Despite breaking the partnership, Wanxiang still controls 20% of Prometheum, Kaplan testified. However, Kaplan assured the senators that no Chinese entity has access to its code, technology or data.
As Congresswoman Blaine Lutkemeyer noted at the hearing, Wanxiang Blockchain, a spin-off of the Wanxiang Group, has strong ties to the Chinese Communist Party. The group’s founder and chairman, Lu Guanqi, who died in 2017, reportedly had favorable relations with the Communist Party and even President Xi Jinping. The group’s current leader, Lu Weiding, is reportedly equally close to the ruling party.
In addition, Walsh pointed out that Prometheum paid more than $1.5 million in sales commissions to a New Jersey-based company called Network 1 Financial Securities, which also has Chinese affiliates and has been the target of more than 20 regulatory and civil suits.
