SEC regulations on dangerous cryptos are a patchy mess

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Gary Genslers, Chairman of the Securities and Exchange Commission, Crypto Regulation Is a Uneven Mess; digital coin exchanges are approved by the commission to go public, only to be sanctioned later for selling crypto the agency doesn’t like. Securities laws are unclear whether he has the legal authority to weigh in as he did, but that hasn’t stopped Gensler from bringing in a slew of business.

There is a decent case to be made. Gensler’s regulatory agenda is also dangerous, and not just for the usual reasons involving aggressive enforcement that could crimp cryptos, possibly breakthrough blockchain technology. It’s also because the SEC, known as Wall Street’s top cop, has been looking like a bunch of key cops lately.

Consider the bizarre case of a company called Prometheum which critics say appears to have slipped through some really big cracks in the SEC to become a $1 trillion thing in the crypto industry.

Prometheum co-founder Aaron Kaplan made news last week. He earned a prominent place at a House Financial Services Committee cryptography hearing to tout a major accomplishment of his little-known outfit. Yes, Gensler pretty much hates crypto and he said so. But he apparently likes this business very much, so much so that his SEC has granted Prometheum status as the first specialty broker for digital assets.

Sam Bankman-Fried was arrested for his mismanagement of FTX. Reuters

It’s a big problem. Remember, before disgraced FTX founder Sam Bankman-Fried was arrested, he was king of crypto and sought such a designation from Gensler. US discount broker Robinhood also wanted one because it allows you to buy and sell cryptos for clients without fear of retaliation from the SEC. In the case of Robinhoods, some crypto guys think they got the stiff arm from the SEC because Bankman-Fried, a major Democratic Party donor, was Gensler’s favorite child, until SBF blew up, of course. , under Garys’ nose.

US-based exchange Coinbase also sought something similar to Prometheum but was pushed back, possibly because the SEC was ready to pounce like it did two weeks ago, blaming the exchange illegally facilitate the buying and selling of securities of crypto assets.

That said, it’s safe to say that Robinhood and even Coinbase should have a leg up on the competition for Prometheum status. Both have survived the SEC’s IPO disclosure process and are listed on the Nasdaq stock exchange. They are well-known entities in regulatory circles.

Private property

What are Prometheums qualifications? It is not a public company; it is a private property of Kaplan, his family and others. Robinhood employs 2,300 people, Coinbase 3,500. Prometheum is said to employ around 25 people. Its headquarters appear to be in an unassuming office on Wall Street, which to those unfamiliar is no longer where the major banks reside these days.

Goldman Sachs and JPMorgan have worked with Robinhood and Coinbase.

One of Prometheums’ underwriters is a company called Network 1 Financial, with offices that appear to be located in Red Bank, NJ., inside an upscale shopping mall (the company did not respond to a request for comment). Network 1, according to its FINRA records, has 18 so-called regulatory events, resulting in approximately $250,000 in penalties, based on my reading of case summaries, over the past three decades.

Prometheums’ filings show no regulatory violations, but a March 28, 2019 SEC disclosure indicates that the company has ties (i.e. strategic partners and joint venturers) with a Chinese company called HashKey.

Some critics said that Prometheum was not properly regulated.

Now follow me here. Someone named Dr. Feng Xiao is the chairman of HashKey as well as the vice chairman and executive director of China Wanxiang Holding Co. Ltd.

Sen. Tommy Tuberville (R-Ala.) said in a letter to Gensler that the Wanxiang Group has a long history of close ties to the CCP, aka the Chinese Communist Party. And it still is. The company is now run by someone named Lu Weiding, who according to a company press release will do so. . . always listen to the Party and follow the Party.

Tuberville says Prometheum’s ties to China raise the same issues that Republicans have raised about the app for Chinese-owned short TikTok videos, or in his words, serious investor protection concerns, data privacy and national security. He added that the SEC must end its desire to continue allowing CCP-related entities to operate in the United States.

Kaplan, in a lengthy statement to the Post, said its Chinese partners no longer play a role in the development of Prometheums technology; his ties to the Chinese have been verified without censorship by two US government agencies. Wanxiang and its affiliates do not have access to any Prometheum code…customer data etc. Prometheum is proud to be a born, raised and controlled company in the USA.

The Genslers, meanwhile, declined my request for comment, but the president was recently interviewed on CNBC and gave Prometheum an attaboy for coming to the SEC and asking for proper registration while agreeing not to trade crypto. that he believes is breaking the law.

Gensler might like Prometheum, but on social media, crypto types are skeptical. They can’t figure out why the SEC likes these guys so much, or what the company actually does. Its CEO boasts that its platform will only trade SEC-sanctioned digital assets, i.e. assets that have registered with the SEC. But as far as I know, none of the major cryptos in circulation retain this designation, certainly not Bitcoin or Etherium, the two most popular digital coins.

Anyway under the hood, let’s hope Gensler didn’t miss another FTX.

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