House Republicans Try To Pre-empt Ether Securities Designation By SEC; Sanctions, Enforcement Highlights

Prometheum week

As we first discussed on Monday, it’s “Prometheum Week” on Capitol Hill even if many Members may be working from home.

Yesterday, Republican leaders on the House Agriculture and House Financial Services (HFS) Committees came out swinging in anticipation of a potential blow-up – ignited by digital asset securities platform Prometheum – between the SEC and the CFTC over the classification of the Ethereum token (ETH) as a security versus a commodity.

In a letter sent to the SEC Chair Gary Gensler, House Ag Chair Glenn “GT” Thompson (R, PA) and HFS Chair Patrick McHenry (R, NC), Reps. French Hill (R, AR), Dusty Johnson (R, SD), House Majority Whip Tom Emmer (R, MN), and Rep. Warren Davidson (R, OH) headlined a list of 48 House Republicans wanting an explanation:

“Despite your insistence that most digital assets are ‘digital asset securities,’ that term continues to be undefined. Other regulators, intermediaries, and market participants disagree with your assertions, and have struggled to identify which digital assets are digital asset securities.”

The Members ask a series of questions trying to get to the bottom of the SEC’s and its Chair’s thinking on digital assets such as: “Is ETH a digital asset security? (…) If ETH is a digital asset security, please answer the following additional questions…”

Read the letter. Answers are due by April 9.

Democrats are nowhere to be found in the press release or the letter.  Prometheum is a threat to the House Republicans digital assets agenda, which Democratic leadership – from the White House to HFS Ranking Member Maxine Waters (D, CA) – likely knows. Read the press release.

what you should know: The April 9 deadline likely lands just in front of the rumored HFS SEC Oversight hearing next month (Politico). If the SEC Chair doesn’t supply adequate responses, will this be the moment for HFS Chair McHenry to use the subpoena card on Gensler that he threatened last October?

Prometheum – how we got here

Yesterday’s letter was ignited by digital asset securities platform Prometheum starting last May when the company received a coveted Special Purpose Broker-Dealer (SPBD) license for its Alternative Trading System (ATS).

Many in the industry wondered at the time… “How’d they do that?” A license of any type from the SEC related to digital assets was seemingly impossible to receive.

Since then, the platform has been in and out of the digital assets news cycle:

    • June 7, 2023 op-ed in the Wall Street Journal by Sen. Tommy Tuberville (R, AL) raised a “red flag” about a national security threat regarding Prometheum’s Chinese investor.
    • June 13, 2023 HFS hearing appearance where Rep. Mike Flood (R, NE) famously questioned Prometheum co-CEO Aaron Kaplan about what crypto tokens were a security and which were a commodity.
    • June 15, 2023, industry organization Blockchain Association was so dismayed by the Prometheum SPBD it sent a FOIA request on the circumstances.
    • Later that month, a debate between crypto venture firm Paradigm and Prometheum’s Kaplan seemed to expose his crypto asset platform.
    • Fast forward to early February 2024, Kaplan “lit the fuse” saying Prometheum would – for the first time – custody Ether on its digital asset *securities* platform. (No word on who the clients are.)
    • Finally, earlier this month at a House Ag CFTC oversight hearing, CFTC Chair Rostin Behnam responsed the Prometheum news in a prepared statement on the threat that the Ether-as-a-security designation by Prometheum presented to the CFTC’s oversight of digital asset commodity markets.

what you should know: The next step in this story is for Prometheum to launch its Ether custody services this week with a client in tow.

crime blotter

Prominent Global Cryptocurrency Exchange KuCoin And Two Of Its Founders Criminally Charged With Bank Secrecy Act And Unlicensed Money Transmission Offenses – Department of Justice

Treasury Targets Qods Force, Houthi, and Hizballah Finance and Trade Facilitators – US Treasury

CFTC Charges KuCoin with Operating Illegal Digital Asset Derivatives Exchange –

OFAC sanctions 13 entities for aiding Russian sanctions evasion via crypto – crypto (Monday) – The Block

‘Starkly fraudulent’ Scottish scheme revealed in crypto laundering caseFinancial Times

still more tips

Opinion: America must lead on cryptocurrency – David McCormick (R, PA), running for U.S. Senate, Washington Examiner

The little-known AI group that got $660 million in crypto from Ethereum founder Vitalik Buterin – Politico

Martin Shkreli on SBF’s mother’s letter – Martin Shkreli on X