Washington, D.C.—Today, U.S. Representative John Rose (TN-06), the Vice Chairman of the House Financial Services Oversight and Investigations Subcommittee, led a letter to SEC Chair Gary Gensler expressing concerns regarding Prometheum Capital’s “soft-launch” of custody services for Etherum. Representative Rose, who is a Member of both the House Committee on Agriculture Digital Assets Subcommittee and the House Committee on Financial Services Digital Assets Subcommittee, has consistently criticized the SEC and Chairman Gensler’s regulation-by-enforcement approach towards digital assets that have led to widespread confusion amongst industry participants.
In the letter, the signers say that “Prometheum’s statements and actions with respect to ETH are misleading and have already caused confusion in the marketplace.” Prometheum has previously garnered the attention of Members of the House Financial Services Committee members for its serious national security and data privacy concerns.
U.S. Rep. Rose released the following statement:
“Players in the digital assets space deserve certainty from their regulators,” said Rep. Rose. “Yet under Chair Gensler they’ve only received chaos and confusion. I hope while Chair Gensler is cleaning out his office, he can heed our concerns seriously and maybe deliver some real guidance on his way out the door.”
Read the full letter here:
“We write to express our continued concerns regarding Prometheum Capital’s (“Prometheum”) May 2024 “soft-launch” of custody services for Ethereum, and its stated intention to offer custodial services for Ethereum’s token, Ether (ETH). As highlighted during the House Committee on Financial Services hearing in September, a special purpose broker-dealer (“SPBD”) registered with the Financial Industry Regulatory Authority (“FINRA”) is not permitted to custody or facilitate trading in digital assets that the U.S. Securities and Exchange Commission (“SEC”) or a court has not determined to be securities, including those sold as part of investment contracts.
“As you know, the SEC effectively acknowledged that ETH is not a security when, in July 2024, it formally approved a number of Ethereum spot exchange-traded funds (ETFs). In addition, the SEC amended its complaint against Binance to clarify that the term “crypto asset securities” does not apply to the digital assets themselves, and instead applies only to how a digital asset is sold. Such a determination has never been made by the SEC or a court with respect to the sales of ETH. Finally, we note that the SEC recently entered into a settlement with eToro, pursuant to which the company has been permitted by the SEC to continue to offer Bitcoin, Bitcoin Cash, and ETH on its platform.
“Prometheum, however, has publicly stated that ETH is a security, and that it intends to offer custodial services to retail investors. Following previous letters from Members of Congress to seek clarification on the SPBD requirements, it continues to be unclear to us how, as a SPBD approved by FINRA to custody securities only, Prometheum can custody ETH in compliance with SEC and FINRA rules, and why the SEC and FINRA continue to allow Prometheum to hold ETH out to the public as a security. As Chair Gensler acknowledged during his testimony before the Committee, SPBDs “are not allowed to custody non-securities,” yet that is precisely what Prometheum has done when it soft-launched its custodial services for ETH.
“As Republicans on the House Financial Services Committee and House Committee on Agriculture have emphasized on numerous occasions, Prometheum’s statements and actions with respect to ETH are misleading and have already caused confusion in the marketplace. Commodities Futures Trading Commission (“CFTC”) Chairman Rostin Benham has correctly pointed out that Prometheum’s actions have risked adding to the already considerable confusion market participants face when determining whether and how to comply with SEC and CFTC rules. By allowing Prometheum to continue to falsely state or suggest that ETH is a security or has been sold as part of an investment contract and can be custodied by a registered SPBD, the SEC and FINRA are complicit in perpetuating confusion and uncertainty in the marketplace, which ultimately harms market participants and consumers.
“The SEC’s and FINRA’s silence are irresponsible and continues to raise troubling questions as it relates to the SPBD requirements and process as well as the SEC’s and FINRA’s ability to oversee broker-dealers and ensure the market’s integrity.”
The letter was signed by Reps. French Hill (AR-02), Dusty Johnson (SD-AL), William Timmons (SC-04) and Mike Flood (NE-01).
Background:
Prometheum is the first digital assets trading platform to receive a Special Purpose Broker Dealer license from the Securities and Exchange Commission, allowing for trading digital asset securities. Prometheum announced in early 2024 that it would offer Ethereum on its platform to retail investors, publicly claiming it is a security. Prometheum’s decision to offer Ethereum as a security does not align with what the SEC has indicated, since it has said Ethereum should be treated as a commodity. Additionally, the license granted to Prometheum only allows it to offer securities and not commodities.
Earlier this year during a House Financial Services Committee Hearing, Rep. Rose asked Chair Gensler whether a SEC-licensed platform could offer a commodity, to which he responded that a licensed platform could only offer securities. As a result, Prometheum’s continued offering of Ethereum appears to be completely misaligned with SEC guidance. Unfortunately, the SEC has made no attempt to offer clear guidance regarding whether Prometheum can offer Ethereum.
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This is a companion discussion topic for the original entry at https://johnrose.house.gov/media/press-releases/rep-rose-leads-letter-sec-chair-gensler