Blockchain Association concerned over Prometheum’s ‘sweetheart’ deal with SEC

Crypto advocacy firm the Blockchain Association sent a letter to the SEC’s Inspector General, Deborah Jeffrey, asking the regulator to look into how and why Prometheum received its Special Purpose Broker-Dealer (SPBD). 

The SEC’s decision to grant Prometheum’s SPBD license raises questions about the agency’s motives, according to the Blockchain Association. This is because, just a few years prior to its approval, Prometheum had been a vocal adversary of the SEC’s application process.

“We are concerned that the Commission granted Prometheum a ‘sweetheart’ deal in exchange for support of the Commission’s policy goals, or that Prometheum is leveraging personal connections with the Commission to gain an unfair advantage in the market,” the Blockchain Association wrote in its letter Wednesday.  

Prometheum became the first crypto exchange to receive a SPDB from the Financial Institution Regulatory Authority (FINRA), which operates under the SEC, in May 2023. The news came as a shock to the Blockchain Association and others in the industry, who have complained about delays and denials in the application process. 

Other crypto exchanges, including Coinbase, which is currently being sued by the SEC for alleged securities violations, and Robinhood Crypto have said they were unable to receive SPBD licenses after months of discourse with the SEC. 

Robinhood chief legal compliance and corporate affairs officer Dan Gallagher appeared before lawmakers during a House hearing last month to discuss crypto market regulation. He expressed frustration with the current registration process, which he says is largely non-existent. 

“When Gensler said ‘come in and register,’ we did…We went through a 16-month process with the SEC staff trying to register as a special-purpose broker-dealer and then we were…told in March that that process was over and we would not see any fruits of that effort,” Gallagher said during the hearing. 

The Blockchain Association’s letter comes as lawmakers in Congress continue to spar over how to divide responsibilities between the SEC and the CFTC. In their newly revamped Responsible Financial Innovation Act, reintroduced Wednesday, Sens. Cynthia Lummis, R-Wyom., and Kristen Gillibrand, D-N.Y., call for crypto exchanges to be overseen by the CFTC as opposed to the SEC. 

The Blockchain Association alleges the SEC could be using Promethuem’s SPBD approval as a way to attempt and stop federal lawmakers from getting involved with the issue. 

“We are concerned that Chair Gensler is using Prometheum and the SPBD licensure process as a means to thwart congressional efforts toward legislation by continuing to spread the false narrative that the law is already clear with regard to digital asset securities,” the letter added. 

The Blockchain Association asks the SEC to open an investigation into how Prometheum was approved for its SPBD license and has filed a request under the Freedom of Information Act to receive internal communications within the SEC pertaining to the application process.

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