Republicans on the U.S. congressional committee that oversees the Securities and Exchange Commission (SEC) are demanding agency Chair Gary Gensler explain how Prometheum Inc. won its unique approval as a broker-dealer for crypto.

The 23 House Financial Services Committee lawmakers who signed the letter, led by Chair Patrick McHenry (R-N.C.), questioned how the previously unknown firm beat out other applicants to obtain the SEC registration as a special-purpose broker-dealer for digital assets, and also what determined the timing of that conclusion.

“The timing of the approval raises concerns that it was aimed at demonstrating that legislation is not needed because there is a workable regulatory framework for the custody of digital asset securities,” the letter said. The lawmakers also sent a letter to the head of the Financial Industry Regulatory Authority (FINRA) – an industry-funded group that sets and enforces securities standards under the SEC’s watch.

The letters raise “serious questions” about whether the SEC championed Prometheum as a poster firm to represent Gensler’s position that no new laws are needed to regulate and police crypto in the U.S., just as McHenry’s committee was about to send digital assets legislation to the House floor. For its part, Prometheum’s executives have insisted that they’ve been going step-by-step through the registration process like any other firm, and co-CEO Aaron Kaplan has argued that his firm will demonstrate the right way to build a crypto platform that’s compliant with current rules.

“Prometheum purpose-built its technology with the goal to develop a market infrastructure for digital asset securities that is compliant with the federal securities laws,” the company said in a Tuesday statement in response to the lawmakers' campaign. “This technology will serve as a building block for a compliant and orderly digital asset securities marketplace that protects investors and serves their best interests.”

The lawmakers are just the latest to call for more information or investigations into the sudden Washington presence of Prometheum – a company that hasn’t yet done any trading. Other Republican members of the Senate and House have also pursued more scrutiny on the situation, and Ritchie Torres (D-N.Y.) – a Democrat on McHenry’s committee – has requested an investigation of the SEC.

UPDATE (August 15, 2023, 21:33 UTC): Adds comment from Prometheum.

Regulations SEC Securities and Exchange Commission Gary Gensler House Financial Services Committee Patrick McHenry Prometheum

Jesse Hamilton

Jesse Hamilton is CoinDesk's deputy managing editor on the Global Policy and Regulation team, based in Washington, D.C. Before joining CoinDesk in 2022, he worked for more than a decade covering Wall Street regulation at Bloomberg News and Businessweek, writing about the early whisperings among federal agencies trying to decide what to do about crypto. He’s won several national honors in his reporting career, including from his time as a war correspondent in Iraq and as a police reporter for newspapers. Jesse is a graduate of Western Washington University, where he studied journalism and history. He has no crypto holdings.