Aaron Kaplan scoffs at crypto legal principles, but offers few details on Prometheum

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The current most polarizing figure in the crypto community, Aaron Kaplan, has said that his yet to launch alternative trading system, Prometheum, will enforce federal securities laws, but was vague on how.

Posted June 27, 2023 at 6:00 a.m. EST.

In a heated debate over the most recent episode of Unchained, current crypto lightning rod Aaron Kaplan, co-CEO of Prometheum, poked fun at some interpretations of the law that the crypto community has long held while giving some details on Prometheum’s future plans.

The trading platform, the first to obtain a special-purpose brokerage license to offer trading in digital asset securities, has attracted attention, in part because it is unclear which tokens, if any. , could be classified as digital asset securities, and in part because of the dismissive attitude Kaplan has taken towards the rest of the industry.

In response to comments from his debate partner, Rodrigo Seira, special counsel at Paradigm, a leading venture capital firm representative of the rest of the industry, Kaplan said, “Basically you create legal concepts in order to serve your objective. . It’s not fundamentally the law.

What tokens can Prometheum ATS support?

When the two disagreed on whether certain tokens would fall into one of the three main categories that would qualify them as securities, Kaplan scoffed at the idea that tokens sold as part of A Simple Agreement for Futures Tokens (SAFT), which has typically been the vehicle for private sales to accredited investors and venture capitalists, were not securities themselves.

“I don’t understand how you could say that something offered in a securities offering is not a security, essentially it’s like the argument that you have a securities caterpillar turned into a non-securities butterfly” , did he declare.

Seira countered with some precedent. Referring to the Howey test for determining whether or not a transaction is title, which was carried out on the basis of a famous case involving orange groves, he said, “but nobody in their right mind would think that plots of orange tree were securities themselves, so I think the first step that you, Aaron, miss is distinguishing between an investment contract and the ultimate purpose of the instrument.

Meanwhile, Kaplan did not go into detail about exactly how Prometheum works, including which assets it would list. While in a previous interview on Unchained he hinted that he considered ether a security, which would make him a candidate to be listed on Prometheum, in the last interview he took issue with it.

“We will not support trading in anything that is an illegal asset,” he said. “We will essentially support the trading of digital asset securities, which is a decision made by our compliance departments at Prometheum ATS and Prometheum Capital to determine if a digital asset security exists.” (The ATS, or Alternative Trading System, will match buyers and sellers, while Prometheum Capital will hold digital asset securities.)

When asked if this would support ETH trading, he only said that Prometheum was not making any announcements.

Some breadcrumbs on Prometheum projects

The few details he gave about how Prometheum works involved assets he called Form D tokens. Securities fall into one of three categories: those listed on national stock exchanges, those that have filed a valid exemption with the SEC and those that are securities under blue sky state laws. While crypto lawyers generally say that no token currently falls into any of these categories, Kaplan asserted that tokens whose issuers have filed Form D exemptions would fall into this category.

Seira replied, “I think Aaron is wrong about that,” noting that the actual tokens involved were SAFTs and that it would be impossible to separate the particular SAFT tokens from those of the rest of the circulating supply.

Additionally, Kaplan said that Prometheum has the ability to offer token trading simply by updating its ATS form with the new assets. He claimed that if FINRA did not object within 20 days, it was fine to support them.

However, Seira pointed out that many of these assets were those that Kaplan had declared in other places that he considered to be issued illegally, and that Prometheum would not have the power to “cure” what Kaplan considers to be theirs. illegal status.

One of the main points raised by the Securities and Exchange Commission regarding the importance of securities registration is that the registration process requires the issuer to make disclosures. When asked who should register the tokens, Kaplan said Prometheum doesn’t have to work with token issuers and can make disclosures for any assets it supports. When asked if the information contained in its disclosures would be the same as that included in securities offerings, such as executives and board of directors, their compensation, etc., – often non-existent or irrelevant information for crypto tokens – he replied that for any irrelevant question he would fill in “NA”.

No love lost between Kaplan and the Crypto community

The two got quite personal. Kaplan went after Seira’s company Paradigm, which had been an investor in the allegedly fraudulent crypto exchange, FTX, which went bankrupt last November.

“It’s interesting how you attack us for taking the hardest route to achieving compliance by obtaining the proper licenses when the ‘shoot first, aim later’ culture that has occurred has resulted in billions of dollars in public losses,” Kaplan told Seira. “Essentially, your company, Paradigm, supported some of the entities that were fundamentally so anti-regulatory that promoted the biggest, biggest violations, biggest frauds in American history.”

Seira, for his part, pointed out that Kaplan had few friends in the crypto industry: “The reason you alienated the community, Aaron, is because you called everyone a scofflaw. . …and you really don’t have to show anything but a license.

Prometheum plans to launch operations in the fourth quarter of this year or the first quarter of next.

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