Securities and Exchange Commission Chair Gary Gensler’s regulation of crypto is an uneven mess; digital-coin exchanges get approved by the commission to go public, only to be sanctioned later for selling crypto the agency doesn’t like. The securities laws aren’t clear if he has crucial legal authority to weigh in as he has done, but that hasn’t stopped Gensler from bringing a slew of cases.
There’s an honest case to be made Gensler’s regulatory agenda is dangerous as well, and never only for the standard reasons involving aggressive enforcement that might crimp crypto’s possibly revolutionary blockchain technology. It’s also since the SEC, often known as Wall Street’s top cop, has been looking recently like a band of keystone cops.
Consider the strange case of an organization called Prometheum that critics allege appears to have slipped through some very large SEC cracks to develop into a thing within the $1 trillion crypto business.
The co-founder of Prometheum, Aaron Kaplan, made some news this past week. He got a primary speaking spot during a House Financial Services Committee crypto hearing to tout a serious achievement of his little-known outfit. Yes, Gensler just about hates crypto and he has said as much. But he apparently really likes this company, a lot in order that his SEC granted Prometheum status as the primary “special purpose broker-dealer for digital assets.”
Sam Bankman-Fried was arrested over his mismanagement of FTX. REUTERS
That’s a giant deal. Recall, before disgraced FTX founder Sam Bankman-Fried was arrested, he was the king of crypto and sought such a designation from Gensler. US discount broker Robinhood wanted one as well since it means that you can buy and sell crypto for clients without fear of SEC reprisal. In Robinhood’s case, some crypto types consider they got the stiff arm from the SEC because Bankman-Fried, a serious Democratic Party donor, was Gensler’s favorite child, until SBF blew up, in fact, under Gary’s nose.
The US-based Coinbase exchange also sought something just like Prometheum but was rebuffed, possibly since the SEC was able to pounce because it did two weeks ago, charging the exchange with “unlawfully facilitating the buying and selling of crypto asset securities.”
That said, a case may be made that Robinhood and even Coinbase must have a leg up on the competition for the status granted Prometheum. Each survived the SEC’s IPO disclosure process and are listed on the Nasdaq stock market. They’re well-known entities in regulatory circles.
Privately owned
What are Prometheum’s qualifications? It’s not a public company; it’s privately owned by Kaplan, his family, and others. Robinhood employs 2,300 people, Coinbase 3,500. Prometheum is claimed to employ around 25. Its headquarters appears to be in an unassuming office on Wall Street, which for the unacquainted isn’t any longer the place where the massive banks reside today.
Goldman Sachs and JPMorgan worked with Robinhood and Coinbase.
One in all Prometheum’s underwriters is a firm called Network 1 Financial, with offices that look like situated in Red Bank, NJ., inside a high-end mall (the corporate didn’t reply to a request for comment). Network 1, in accordance with its FINRA records, has 18 so-called “regulatory events,” leading to around $250,000 in penalties, by my reading of the case summaries, over the past three many years.
Prometheum’s filings show no regulatory infractions, but a March 28, 2019, disclosure with the SEC says the corporate has ties (aka “strategic partners and joint venturers”) with a Chinese outfit called “HashKey.”
Some critics said that Prometheum just isn’t being properly regulated.
Now follow me here. Someone named “Dr. Feng Xiao” is the chairman of HashKey in addition to vice chairman and executive director of China Wanxiang Holding Co. Ltd.
Sen. Tommy Tuberville (R-Ala.) in a letter to Gensler said, “Wanxiang Group has a protracted history of close ties to the CCP,” aka the Chinese Communist Party. And it still does. The firm is now run by someone named Lu Weiding, who an organization press release noted “will . . . at all times take heed to the Party and follow the Party.”
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Tuberville says Prometheum’s ties to China raise the identical issues Republicans have raised concerning the Chinese-owned short-video app TikTok, or in his words, “serious concerns related to investor protection, data privacy, national security.” He added the SEC must end its “willingness to proceed to permit entities with links to the CCP to operate in the US.”
Kaplan, in a lengthy statement to The Post, said his Chinese partners now not play a task in the event of Prometheum’s technology; its ties to Chinese have been vetted without censure by two US government agencies “Wanxiang and its affiliates don’t have any access to any Prometheum code . . . customer data,” etc., “Prometheum is proud to be an American-born, bred, and controlled company.”
Gensler’s people, meanwhile, declined my request for comment, however the chairman was recently interviewed on CNBC and gave Prometheum an “attaboy” for coming to the SEC and looking for proper registration while agreeing to not trade crypto he believes violate the law.
Gensler might like Prometheum, but on social media, crypto types are skeptical. They will’t appear to work out why the SEC likes these guys a lot, or what the corporate actually does. Its CEO brags its platform will trade only SEC-sanctioned digital assets, which implies those assets which have gone and registered with the SEC. But so far as I can tell, none of the foremost crypto in circulation maintains that designation, definitely not Bitcoin or Etherium, the 2 hottest digital coins.
Whatever’s under the hood, let’s hope Gensler hasn’t missed one other FTX.
