New SEC Assistant Prometheum Accused Of Close Relationship With Chinese Companies

Key Points:

• U.S. Senator Tuberville seeks investigation into Prometheum for potential violations and false testimony.
• Its CEO claimed independent blockchain development, but SEC filings suggest reliance on a Chinese company with alleged ties to Communist Party.
• Concerns were raised over the company’s major Chinese investor, data security, and viability of the trading mechanism.

On Monday, U.S. Senator Thomas Tuberville sent an open letter to Attorney General Merrick Garland and Securities and Exchange Commission (SEC) Chair Gary Gensler, requesting that they investigate Prometheum, a special-purpose broker that recently received federal approval to offer crypto trading services.

According to the legislator, Prometheum CEO Aaron Kaplan informed Congress that the company began developing its own blockchain technology independently in December 2019. The company, on the other hand, said in SEC filings submitted through 2021 that it relied on Shanghai Wanxiang Blockchain, Inc., a Chinese corporation Tuberville claimed had links to the Chinese Communist Party.

The open letter started:

“Prometheum may have provided false testimony to Congress or violated U.S. securities laws.”

Senators. Tommy Tuberville, R-Ala., Blaetkemeyer, R-Miss., Barry Loudermilk, R-Ga., Ralph Norman, R-S.C., Byron Donalds, R-Flor., and Mark Alford, R-Missouri signed the letter.

Aaron Kaplan, co-CEO of Prometheum, Inc., spoke before the House Financial Services Committee last month on the future of digital assets. Democrats invited Kaplan to the hearing in the hopes of stifling Prometheum, which recently received the SEC and Financial Industry Regulatory Authority’s first-ever approval to operate as a special purpose broker-dealer for digital asset securities, as a responsible digital asset industry participant who follows the rules.

Most members of Congress were unaware that Prometheum’s major outside investor was a Chinese company – Wanxiang Blockchain and its offshoot HashKey – with significant and well-documented links to the Chinese Communist Party when the hearing invitation was offered to Kaplan.

A top executive from HashKey now participates on Prometheum’s board, and Prometheum has a formal tech development agreement in place with its China-based partners until October 2021. Kaplan characterized Wanxiang in the following manner when presenting at a conference:

“They’re not a partner, they’re our co-founder, and we work hand in hand with them, and leveraging their excellent resources and expertise, we really feel that we can achieve our business plan in an efficient and intelligent manner.”

This is not the first time Tuberville has made such claims. Previously, the congressman penned an opinion article for the Wall Street Journal stating that Prometheum’s links to Wanxiang, as well as its broker clearance, may pose concerns to the data security and privacy of US investors.

“Why would Prometheum continue to assert in filings through 2020 and well into 2021 that it was continuing development efforts with its partners Wanxiang and Hashkey?” the letter added.

According to Kaplan, although Wanxiang owns 20% of Prometheum, it has no access to the company’s data or technology, and the SEC is looking into this connection.

The startup has also received harsh criticism from the cryptocurrency community, with members claiming that Prometheum’s planned mechanism for trading crypto assets as securities is unworkable.

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