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Crypto firm Prometheum’s co-founder and co-CEO Aaron Kaplan testified before the U.S. Financial Services House Committee on June 13

The “full-service market” crypto brokerage gained the spotlight after Kaplan took a pro-SEC stance in his testimony, in stark contrast to the majority of industry leaders.

Kaplan’s testimony set the Twitter space ablaze with curiosity about the little-known crypto platform, with rumors swirling about its ties to the Chinese Communist Party.

Prometheum deems existing rules sufficient

Reading from his prepared statements, Kaplan said there was no need for regulatory clarity in crypto. His comments contradicted those of Coinbase and the crypto industry at large, who have been demanding more clarity for years.

The Federal Securities Laws, which have been “tried and tested for almost 90 years,” are sufficient to regulate crypto, Kaplan stated. He added:

“The essential point at hand is not about more or less regulation or even new regulation, but rather the application of the existing regulatory frameworks to digital assets.”

Kaplan went on to say that crypto platforms that argue for new laws are “simply not willing to comply” with the existing laws and regulations.

He added that new legislation is “not in the best interest” of investors and the crypto industry. Bringing in new legislation would take years and investors would be exposed to reckless, unlawful 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, slammed Kaplan, saying his argument that the industry does not need any new legislation “just doesn’t make sense.” Besides, Flood also highlighted that Prometheum itself was 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 nearly 60% of the market, Flood added:

“If anything, the fact that Prometheum’s customers cannot trade some of the most popular digital assets is an illustration of the broader problem.”

The people behind Prometheum

Aaron and Benjamin Kaplan co-founded Prometheum in 2017. As of March 2022, the firm had raised $42 million in funding.

Prometheum is noteworthy because of its two subsidiaries that 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 it received approval from the Financial Industry Regulatory Authority. However, Prometheum Ember Capital has not received approval for clearing and settling trades, which means that it cannot effectively allow its users to trade crypto, according to a Bloomberg report. The firm has also not disclosed the tokens it will support.

It is worth noting that Prometheum itself created and partially sold native Ember tokens to its Chinese affiliate, as per SEC filings.

The co-founders, who also serve as co-CEOs at Prometheum, are listed as attorneys at the 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 managing member of Gusrae Kaplan.

Cochran also noted that Prometheum’s chief regulatory officer Rosemarie Fanelli previously worked for 13 years at FINRA, which is a self-regulatory body. Additionally, Prometheum’s chief compliance officer Joseph Zangri previously worked as a senior enforcement attorney at the SEC.

Furthermore, John Tornatore, Prometheum’s head of business development, worked for 10 years with the Chicago Board Options Exchange.

Cochran speculated that the close ties of these senior Prometheum executives with regulators could have helped the firm secure its approvals.

Twitter speculation and uproar

Cochran theorized that the SEC is possibly giving Kaplan a “sweet regulatory deal in exchange for engaging in the way the SEC wanted to.” He also speculated that perhaps Prometheum is trying to “push an agenda” to have certain cryptocurrencies labeled as securities and to become the only regulated platform to capture the market.

Lastly, Cochran said it is possible Prometheum is run by “grifters” who raised money from “sketchy sources” that want to continue swindling. He concluded:

” I don’t know which one it is, but something is rotten here.

With all the efforts Coinbase, Kraken and other reputable firms have put into putting their best foot forward – it is impossible to believe this sketchy agency got the green light.”

General partner at Castle Island VC Matt Walsh said Prometheum’s story is “the strangest thing I have seen in a while in this industry.”

Other critics pointed out that Prometheum’s approach “cannot work as advertised,” calling it a “bicycle with no wheels.” For any token to be listed on a licensed ATS, it has to be first registered with the SEC as a security.

Rodrigo Seira, special counsel at Paradigm, explained:

“Prometheum’s ATS won’t be able to trade ANY TOKENS unless projects first register the tokens with SEC.

And as we have 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 doubt as to whether Prometheum is the right firm to guide crypto regulation. Not only are people questioning the integrity of the firm itself, but they also doubt 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 affiliate HashKey were its “strategic partners and joint ventures,” according to SEC filings of Prometheum in 2019.

As per Kaplan’s prepared testimony, Prometheum raised funding 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 formally terminated in November 2021.

Despite severing the partnership, Wanxiang still controls 20% of Prometheum, Kaplan testified. However, Kaplan assured senators that no Chinese entity has any access to its code, technology, or data.

As Congressman Blaine Lutkemeyer pointed out 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 present leader, Lu Weiding, is reportedly equally close to the ruling party.

Furthermore, Walsh pointed out that Prometheum has paid over $1.5 million as sales commissions to a New Jersey-based firm called Network 1 Financial Securities, which also has Chinese affiliates and has been the target of over 20 regulatory and civil actions.