Aaron Kaplan, co-founder and co-CEO of crypto firm Prometheum testified before the United States Financial Services House Committee on June 13
The “full-service marketplace” crypto brokerage gained attention after Kaplan took a pro-SEC stance in his testimony, in stark contrast to the majority of industry leaders.
Kaplan’s testimony has ignited the Twitter space with curiosity about the little-known crypto platform, with rumors swirling about its ties to the Chinese Communist Party.
Prometheum considers the existing rules sufficient
Playback of prepared sound statements, Kaplan said there is no need for regulatory clarity in crypto. His comments contradicted those of Coinbase and the crypto industry in general, which have been calling for more clarity for years.
Federal securities laws, which have been “tried and tested for nearly 90 years,” are sufficient to regulate crypto, Kaplan said. He added:
“The key point at hand is not more or less regulation or even new regulation, but rather the application of existing regulatory frameworks to digital assets.”
Kaplan went on to say that crypto platforms advocating for new laws are “simply unwilling to comply” with existing laws and regulations.
He added that the new legislation is “not in the best interest” of investors and the crypto industry. Introducing new legislation would take years and investors would be exposed to reckless and illegal platforms in the meantime, he argued.
Kaplan pointed out that there is a “compliant path for crypto,” which the U.S. Securities and Exchange Commission has “clearly defined.”
Senator Mike Flood, however, criticized Kaplan, saying his argument that the industry doesn’t need new legislation “just doesn’t make sense.” Additionally, Flood also pointed out that Prometheum itself is asking for more regulatory clarity until April 2021.
Confirming with Kaplan that Prometheum users cannot trade Bitcoin or Ethereum, the two most popular cryptocurrencies that control almost 60% of the market, Flood added:
“In fact, the fact that Prometheum customers cannot trade some of the most popular digital assets is an illustration of the larger problem.”
The people behind Prometheum
Aaron and Benjamin Kaplan co-founded Prometheum in 2017. As of March 2022, the company had raised $42 million in funding.
Prometheum is notable because of its two subsidiaries which have received regulatory approval.
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 for trade clearing and settlement, which means it effectively cannot allow its users to trade crypto, according to Bloomberg. report. The company also did not disclose which tokens it will support.
It should be noted that Prometheum itself created and partially sold native Ember tokens to its Chinese subsidiary, in accordance with the SEC. deposits.
The co-founders, who are also co-CEOs of Prometheum, are list as attorneys at finance-focused law firm Gusrae Kaplan, as crypto analyst Adam Cochran pointed out in a Twitter thread. Additionally, Prometheum Chairman Martin H. Kaplan is a member of Gusrae Kaplan’s management.
Cochran also noted that Prometheum’s chief regulatory officer, Rosemarie Fanelli, previously work for 13 years at FINRA, which is a self-regulatory body. Additionally, Prometheum Chief Compliance Officer Joseph Zangri previously work as Senior Enforcement Counsel at the SEC.
Additionally, John Tornatore, Head of Business Development at Prometheum, worked for 10 years with the Chicago Board Options Exchange.
Cochran speculated that those senior Prometheum executives’ close ties to regulators might have helped the company win his approvals.
Speculation and uproar on Twitter
Cochran speculated that the SEC may be giving Kaplan a “good regulatory deal in exchange for a commitment the way the SEC wants.” He also speculated that Prometheum may be trying to “push an agenda” for certain cryptocurrencies to be labeled as securities and become the only regulated platform to take the market.
Finally, Cochran said it’s possible that Prometheum is run by “scam artists” who have raised funds from “sketchy sources” who want to continue scamming. He concluded :
“I don’t know which one it is, but something is rotten here.
With all the effort Coinbase, Kraken, and other reputable companies have gone to to do their best, it’s impossible to believe this sketchy agency got the green light.
Castle Island VC general partner Matt Walsh said Prometheum’s story is “the weirdest thing I’ve seen in this industry in a while”.
Other reviews sharp that Prometheum’s approach “may not work as advertised”, calling it a “bike without wheels”. For a token to be listed on a licensed ATS, it must first be registered with the SEC as a security.
Rodrigo Seira, Special Counsel at Paradigm, explained:
“The Prometheum ATS will not be able to trade ANY TOKENS unless the projects first register the tokens with the SEC.
And as we pointed out, there are effectively no tokens registered with the SEC because the current regime is not a viable option.
Essentially, the crypto community is plagued with doubts as to whether Prometheum is the right company to guide crypto regulation. Not only are people questioning the integrity of the firm itself, but they are also questioning the credentials of Aaron Kaplan, a law school graduate who has now lost his credential.
Possible links with the CCP
China-based Wanxiang Blockchain and its subsidiary HashKey were its “strategic partners and joint ventures”, according to SEC filings by Prometheum in 2019.
According to testimony prepared by Kaplan, 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 partnership was officially terminated in November 2021.
Despite the partnership breaking up, Wanxiang still controls 20% of Prometheum, Kaplan said. However, Kaplan assured senators that no Chinese entity has access to its code, technology or data.
As Congressman Blaine Lutkemeyer pointed out during the hearing, Wanxiang Blockchain, a spin-off of Wanxiang Group, has close ties to the Chinese Communist Party. The group’s founder and chairman, Lu Guanqi, who died in 2017, is said to have favorable relationships with the Communist Party and even President Xi Jinping. The group’s current leader, Lu Weiding, is also believed to be close to the ruling party.
Additionally, 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 Chinese subsidiaries and has been the target of more than 20 regulatory and civil actions.
