Katherine Ross

Casey Wagner

A group of Republican congressional members on Monday asked the Department of Justice and the SEC to investigate Prometheum, a crypto company that has come under increased industry scrutiny in recent weeks.&nbsp;



Lawmakers also tapped the Financial Industry Regulatory Authority (FINRA) to investigate Prometheum’s membership.



The group claims that Aaron Kaplan, CEO of Promethuem, may have violated securities laws and provided false testimony when he appeared before lawmakers on the Hill last month.&nbsp;



On June 13, while serving as a congressional witness, Kaplan told the Committee on Financial Services that Promethuem “started to independently develop its own platform,” after failing to develop a blockchain trading system with Hashkey’s Wanxiang Blockchain.&nbsp;



The letter was signed by Sens. <a href="https://blockworks.co/tag/tommy-tuberville">Tommy Tuberville</a>, R-Ala., Blaine Luetkemeyer, R-Miss.,&nbsp;Barry Loudermilk, R-Ga., Ralph Norman, R-S.C., Byron Donalds, R-Flor., and Mark Alford, R-Missouri.&nbsp;



But lawmakers said the statement — which they interpreted to mean Prometheum was developing the platform without China-based partners — still relied on the Hashkey partnership, according to SEC filings from 2020 and 2021.&nbsp;



In the letter, lawmakers questioned why Prometheum in those filings “not made clear” that the company was “developing its own technology platform totally independent of its China-based, XCCP-tied partners in December 2019 as Mr. Kaplan attempted to lead Congress to believe in his congressional testimony.”&nbsp;



Added the letter: “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?”&nbsp;



The letter comes <a href="https://blockworks.co/news/tuberville-bill-block-chinese-ownership">roughly a month after Tuberville introduced a bill</a> to ban companies established in China from acquiring a stake in American digital asset firms. The legislation was co-sponsored by Sen. Kristen Gillibrand, D-N.Y., who has<a href="https://blockworks.co/news/gillibrand-lummis-revamped-crypto-bill"> spearheaded several efforts to establish broader crypto regulation in the US</a>. 



The bill, which would amend the Commodity Exchange Act, would prohibit the <a href="https://blockworks.co/tag/cftc">CFTC</a> from greenlighting any American-based crypto firm that is “owned in whole or in part by an entity organized or established in the [People’s Republic of China].”&nbsp;



The senators did not give the DOJ and SEC a deadline to respond, saying they “look forward” to hearing the regulators’ replies.



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Republicans call on DOJ, SEC to investigate Prometheum, alleging China ties

James Cirrone

Sen. Tommy Tuberville, R-Ala., introduced a bill Wednesday alongside Sen. Kirsten Gillibrand, D-N.Y., that will ban companies established in China from acquiring a stake in American digital asset firms. 



The <a href="https://www.congress.gov/bill/118th-congress/senate-bill/1870?s=1&amp;r=1">bill</a> is an attempt to rid the influence of the Chinese Communist Party on American crypto companies, according to Tuberville.



“This bipartisan bill will help to wall off the burgeoning American digital commodity industry from CCP interference and preserve our data privacy and investor protection rights,” Tuberville wrote in a <a href="https://www.tuberville.senate.gov/newsroom/press-releases/tuberville-leads-bipartisan-bill-to-block-ccp-ownership-of-american-crypto-companies/">statement</a>.&nbsp;



Serving as an amendment to the Commodity Exchange Act, the bill would prohibit the CFTC from greenlighting any American-based crypto firm that is “owned in whole or in part by an entity organized or established in the [People’s Republic of China].”&nbsp;



Tuberville first made his intentions to introduce this bill known in a Wednesday Wall Street Journal opinion <a href="https://www.wsj.com/articles/crypto-communism-has-a-new-meaning-prometheum-custody-data-commodities-china-d655bb88?st=pvmccr81tw8iwyx&amp;reflink=article_copyURL_share">piece</a>, where he added that under the bill, the CFTC would have the power to block sales of crypto firms to Chinese-based companies.&nbsp;



In it, Tuberville hinted that his crypto bill could be slipped into the US Farm Bill, a massive piece of legislation that expires in September 2023.&nbsp;



Prometheum Ember Capital is what spurred Tuberville’s interest to keep China out of American crypto. Prometheum was <a href="https://www.businesswire.com/news/home/20230523005313/en/Prometheum-Ember-Capital-is-the-First-SEC-Qualified-Custodian-for-Digital-Assets-Securities">granted</a> a license by FINRA on May 23 to operate as a custodian for digital assets. Tuberville cited SEC <a href="https://www.sec.gov/Archives/edgar/data/1718271/000101905619000222/offeringcircular.htm">filings</a> showing that Prometheum is strategic partners with Shanghai Wanxiang Blockchain Inc., which is a spinoff of Wanxiang Group.



Tuberville’s smoking gun is that Lu Guanqiu, the founder of Wanxiang Group, was posthumously praised by the CCP in 2021 and named a &#8220;National Excellent Communist Party Member.&#8221; The CCP went on to say in a press <a href="http://www.wanxiang.com.cn/en/index.php/news/info/2132">release</a> that “Comrade Lu Guanqiu had always listened to the Party and followed the Party.”



So far, China hasn’t been a <a href="https://blockworks.co/news/crypto-bills-make-hill-debut">huge focus in lawmakers’ crypto bills</a>, but Tuberville has shifted that dynamic. Gillibrand hasn’t been on the record about her joint effort with Tuberville on this bill, but has teamed up with Republicans before.&nbsp;



Gillibrand and Sen. Cynthia Lummis, R-Wyo., tried to pass the Responsible Financial Innovation Act last year, a bill focused on regulating digital assets. It hasn’t been reintroduced in the new congress yet.



Congress is also beginning to take notice of Web3 and blockchain technology, applications of crypto beyond money and currency.



The House Energy and Commerce Committee Subcommittee on Innovation, Data and Commerce gathered Wednesday to discuss possible use cases for distributed ledger tech.&nbsp;



One professor talked about blockchain’s potential to advance contact tracing systems for Covid-19 and other diseases. Another expert testified on the topic of smart contracts, saying they could help improve regulatory compliance and supply chain management.



Rep. Rick Allen, R-Ga., said his colleagues are making a mistake talking only about the security versus commodity debate.



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Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



The Lightspeed newsletter is all things Solana, in your inbox, every day. <a href="https://blockworks.co/newsletter/lightspeed">Subscribe to daily Solana news</a> from Jack Kubinec and Jeff Albus.