Republicans ask Justice Department, SEC to investigate Prometheum

A group of Republican lawmakers wants the Justice Department and Securities and Exchange Commission to investigate digital asset firm Prometheum, whose co-CEO Aaron Kaplan testified before a House committee as a Democratic witness at a hearing on crypto-related legislation last month. 

Prometheum recently gained approval from the SEC as an alternative trading system, with Kaplan testifying in June that he wanted to build a crypto trading platform that operated within existing securities laws — a message in line with the SEC's approach since it began cracking down on initial coin offerings as unregistered securities in 2017. That view cuts against much of the digital asset industry, which argues that blockchain-based assets should not be subject to the same investment rules as other businesses. The firm has been subject to increased scrutiny since Kaplan's appearance. 

Now several Republicans on the committee, as well as a senator uninvolved in the hearing, want the Justice Department and SEC to investigate the company.

"Making false statements to Congress is a crime. Submitting false or misleading statements in SEC filings constitutes securities fraud," write the House and Senate Republicans.

Prometheum’s relationship to Hashkey under scrutiny

During last month's hearing Republicans questioned Kaplan about Prometheum's business operations, including Chinese investment. Now they want an investigation into whether Prometheum mischaracterized its relationship with overseas investors in statements to the SEC and Congress.

Sen. Tommy Tuberville, R-Ala., led the letter, and took issue with what he said is Prometheum’s largest outside investor — China-based company Shanghai Wanxiang Blockchain, Inc. and its subsidiary HashKey Digital Asset Group, Ltd., one of the largest crypto firms in Asia. Reps. Blaine Luetkemeyer, R-Mo., Barry Loudermilk, R-Ga., Ralph Norman, R-S.C., Byron Donalds, R-Fla., and Mark Alford, R-Mo., also signed the letter.

“These ties are deeply concerning to each of us and to many of our colleagues in Congress,” the lawmakers said in their letter on Monday.

Most of the House Republicans signing onto the letter are members of the House Financial Services Committee, which has jurisdiction over the SEC. Most Republicans on the committee did not sign the letter.

Prometheum did not immediately comment.

Before the June hearing Tuberville raised concerns about Promethem’s ties to China before in a June 5 letter to the Financial Industry Regulatory Authority, which approved Prometeum as a special purpose broker dealer, and the SEC.

Those concerns were “unfounded and without merit,” Kaplan said in his prepared testimony before the House Financial Services Committee last month. Hashkey made an investment into Prometheum in 2018, and Prometheum and Wanxiang entered into a “development agreement,” Kaplan said, but added that a year later it became clear that “joint development was not viable.” Kaplan added that all servers, code, data and proprietary technology were created by Prometheum independently of Wanxiang.

Republicans signing the letter cast skepticism on that statement. 

“If Prometheum began developing its own technology platform totally independent of its China-based, CCP-tied partners in December 2019 as Mr. Kaplan attempted to lead Congress to believe in his congressional testimony, why was this not made clear in Prometheum’s SEC filings,” the lawmakers said. 

In their request for an investigation, which the DOJ and SEC do not have to comply with, the lawmakers ask for "prompt attention to our concerns," but do not provide a deadline for a response.