U.S. lawmakers have escalated their scrutiny of the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) over what they call the “shady approval” of Prometheum as the first and only special purpose broker-dealer (SPBD) for digital assets. In letters dated August 9, 2023, Chairman Patrick McHenry (R-NC) and other Republican members of the House Financial Services Committee demanded that both agencies provide all documents and communications related to Prometheum’s application by August 22.
Background: A Controversial First SPBD
The SEC created the SPBD category in 2020 to allow firms to custody digital asset securities under existing securities laws. In May 2023, FINRA granted SPBD status to Prometheum Ember Capital LLC, making it the first firm to receive such a license. However, several other applicants have not yet been approved, leading lawmakers to question the timing and motivation behind Prometheum’s approval.
The letters note that the approval came as the committee was working on legislation to address gaps in digital asset regulation — legislation that was eventually released on June 2, 2023. The lawmakers suspect the approval may have been an attempt to demonstrate that new laws are unnecessary, arguing that the existing regulatory framework is sufficient for digital asset securities custody.
Key Concerns: No Customers, No Track Record
The lawmakers pointed out that Prometheum has not served a single customer since its approval and has refused to disclose which digital asset securities its alternative trading system (ATS) would support. Furthermore, the company lacks the ability to 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,” the letter states.
China Ties Raise National Security Flags
Perhaps the most explosive allegation is that Prometheum has “ties to the Chinese government.” Congressman Scott Fitzgerald (R-WI) wrote on Twitter: “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].” Congressman Ritchie Torres (D-NY) has also previously called for an investigation into the SPBD license granted to Prometheum by the SEC.
The lawmakers view these ties as raising serious national security and data privacy concerns, especially given the broader U.S.-China technology competition. The committee demanded that the SEC and FINRA produce all internal communications regarding the approval, including any discussions about the company’s foreign connections.
The investigation highlights the deepening partisan and geopolitical divides in U.S. crypto regulation. Market watchers warn that the Prometheum controversy could delay broader regulatory clarity for digital assets, as the case exposes potential conflicts between regulatory innovation and national security.