Fox Business journalist Eleanor Terrett reported on November 15, 2024, that a group of Republican lawmakers from the U.S. House Financial Services and Agriculture Committees sent a letter to SEC Chair Gary Gensler and FINRA CEO Robert Cook.
Led by Representative John Rose, the lawmakers expressed serious concerns over the lack of regulatory clarity surrounding Prometheum Capital’s custody services for Ethereum (ETH).
SCOOP: @FoxBusiness has learned that some Republican members of the @FinancialCmte led by @RepJohnRose sent a letter today to @SECGov Chair @GaryGensler and @FINRA President/CEO Robert Cook expressing concern over their continued silence regarding @PrometheumInc’s May launch of… pic.twitter.com/oCL1Z6nKMK
— Eleanor Terrett (@EleanorTerrett) November 15, 2024
Details of the Letter
The lawmakers argue that Prometheum’s move to offer custodial services for ETH as a “crypto asset security” is inconsistent with prior SEC statements.
The SEC has indicated that ETH is not a security, particularly following its approval of Ethereum spot exchange-traded funds (ETFs) earlier this year.
Moreover, the agency clarified in recent actions that the term “crypto asset security” applies to the method of sale rather than the digital assets themselves.
In their letter, the lawmakers stated, “The SEC’s and FINRA’s silence are irresponsible and continue to raise troubling questions.” They criticized the agencies for fostering market confusion, particularly in light of Prometheum’s saga.
According to the letter, Prometheum’s Special Purpose Broker-Dealer (SPBD) status allows it to custody securities but not non-securities like ETH. This apparent contradiction raises questions about regulatory oversight and consistency.
Prometheum’s actions have drawn scrutiny from Congress and the broader digital assets community. During a House Financial Services Committee hearing earlier in September, SEC Chair Gensler acknowledged that SPBDs are prohibited from custodying non-securities.
By allowing Prometheum to proceed with its custodial services, the SEC and FINRA may have inadvertently validated Prometheum’s stance that ETH is a security, creating further regulatory ambiguity.
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How Can This Affect the Market?
The lawmakers emphasized the broader implications of this situation, pointing out the challenges it poses for market participants trying to navigate conflicting regulatory frameworks.
Representative John Rose underscored this concern, stating, “Players in the digital assets space deserve certainty from their regulators. Yet under Chair Gensler they’ve only received chaos and confusion.”
The letter was co-signed by Representatives French Hill, Dusty Johnson, William Timmons, and Mike Flood. They urged the SEC and FINRA to address their concerns and provide definitive guidance on how Prometheum’s activities align with regulatory requirements.
The controversy comes amid ongoing criticism of the SEC’s approach to regulating digital assets. Prometheum has been a contentious figure in the space, with some alleging that it has received favorable treatment despite uncertainties surrounding its compliance with SEC rules.
This is not the first time the SEC’s hypocrisy has been called out, and the SEC’s handling of Prometheum reflects broader issues with its inconsistent and opaque regulatory strategy.
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