The U.S. House Financial Services Committee, under Chairman Patrick McHenry (R-NC), has launched a probe into the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) regarding what lawmakers call the “shady approval” of Prometheum as the first and only special purpose broker-dealer (SPBD) for digital assets. In letters dated August 9, the Republican-led committee demanded transparency on the approval process, raising concerns about the company’s lack of customers, operational history, and alleged ties to the Chinese government.
Questionable Timing and Circumstances
The SEC created the SPBD framework in 2020 to allow broker-dealers to custody digital asset securities. FINRA approved Prometheum Ember Capital LLC as the first SPBD in May 2023, while other applicants remain pending. Lawmakers argued that the approval came at a critical time: Congress was considering legislation to fill regulatory gaps for digital assets, with a bill released on June 2, 2023. “The timing of the approval raises concerns that it was aimed at demonstrating that legislation is not needed because there is a workable regulatory framework,” the letter stated.
Lack of Operations and Transparency
Lawmakers highlighted that Prometheum “has not yet served a single customer” and has refused to disclose which digital asset securities its alternative trading system (ATS) would support. Additionally, the firm cannot yet perform clearing or settlement services, which are essential for operating an ATS. “It is unclear why FINRA would have chosen to approve a firm with no operating history and no track record of serving customers over all the applications that it has received,” they stressed.
Chinese Government Ties Raise National Security Red Flags
Congressman Scott Fitzgerald (R-WI) noted on social media, “It’s concerning that SEC Chair Gensler’s first and only approval of a special purpose broker-dealer for digital assets was done for a company with strong ties to the CCP [Chinese Communist Party].” Lawmakers view these ties as serious national security and data privacy concerns. Representative Ritchie Torres (D-NY) had previously called for an investigation into Prometheum’s SPBD license.
Demand for Internal Documents
The committee demanded that the SEC provide “all documents and communications, between and among SEC employees, related or referring to Prometheum’s application to become a special purpose broker-dealer” by August 22, 2023. The probe intensifies scrutiny of the SEC’s crypto regulatory approach and could influence ongoing legislative debates. Prometheum’s case spotlights the challenges of fitting digital assets into traditional securities frameworks.