May 22, 2024

The Honorable Gary Gensler

Chair
U.S. Securities and Exchange Commission
100 F Street NE
Washington, DC 20549

Chair Gensler:

On March 26, 2024, 48 members of the House Committees on Agriculture and Financial
Services wrote to you expressing concerns with an announcement that Prometheum was
intending to provide custody services for Ethereum’s token, Ether (ETH), through its subsidiary,
Prometheum Ember Capital LLC (Prometheum Capital), a Financial Industry Regulatory
Authority (FINRA) approved Special Purpose Broker-Dealer (SPBD).

In your reply, dated April 9, 2024, you indicated that you could not respond specifically to
certain matters raised in our letter, emphasizing “[you were] not privy to any details of
Prometheum’s future business plans, including whether and under which conditions Prometheum
Capital might take actual steps to custody ETH.”

Earlier this week, reports indicated that Prometheum Capital has “soft launched” it’s ETH
custody services for certain select clients. Now that Prometheum’s “future business plans” are
its current business plans and it has taken actual steps to custody ETH, we are resubmitting our
previous letter to you on behalf of our committee members for your prompt response. To the
extent you are still unable to respond specifically to certain matters raised in the letter, please
indicate specifically which matters those are and why you cannot respond.

We look forward to your response no later than June 7, 2024.

Sincerely,

Glenn “GT” Thompson Patrick McHenry

Chairman Chairman
House Committee on Agriculture House Committee on Financial Services
Enclosures:

03.26.2024 Letter to the Honorable Gary Gensler

04.09.2024 Response to Chairman McHenry and Chairman Thompson
 March 26, 2024

The Honorable Gary Gensler

Chair
U.S. Securities and Exchange Commission
100 F Street NE
Washington, DC 20549

Chair Gensler:

We write to express our concerns regarding Prometheum, Inc.’s (Prometheum) recent

announcement that its subsidiary, Prometheum Ember Capital LLC (Prometheum Capital), a
Financial Industry Regulatory Authority (FINRA) approved Special Purpose Broker-Dealer
(SPBD), will provide custody services for Ethereum’s token, Ether (ETH), later this month to
institutional clients. 1 In particular, we are concerned by the lack of transparency in the Securities
and Exchange Commission’s (SEC) SPBD regime and the SEC’s failure to address
Prometheum’s intent to custody an asset that the SEC and the Commodity Futures Trading
Commission (CFTC) have recognized as a non-security digital asset. We urge you to clarify the
SEC’s position with respect to a SPBD’s ability to custody non-securities, willingness to address
SPBD non-compliance, regulatory classification of ETH, and position regarding Prometheum’s
announcement.

As you are aware, the agencies have an extensive public record identifying ETH as a non-
security digital asset. There are multiple regulatory actions grounded in that position. Yet now,
we are faced with an alarming scenario in which a SPBD has announced that it intends to offer
custodial services for ETH under a regime that does not permit such activity. This action, if
allowed to proceed, could have irreparable consequences for the digital asset markets.

Lack of Clarity in Identifying Digital Asset Securities

Despite your insistence that most digital assets are “digital asset securities,” that term continues
to be undefined. Other regulators, intermediaries, and market participants disagree with your
assertions, and have struggled to identify which digital assets are digital asset securities.
Moreover, the SEC’s failure to propose a rule or provide comprehensive guidance that provides
clear rules for the digital asset marketplace regarding asset classification has only exacerbated
the uncertainty in the digital asset ecosystem. Compounding the uncertainty, the SEC has

1
Prometheum Announces Custodial Services for Ether (ETH), Opens Account Sign Up for Institutional Clients,
Business Wire (Feb. 7, 2024), https://www.businesswire.com/news/home/20240207966185/en/Prometheum-
Announces-Custodial-Services-for-Ether-ETH-Opens-Account-Sign-Up-For-Institutional-Clients.

1
engaged in multiple enforcement actions, accusing certain digital asset trading platforms of
failing to register as brokers, clearing agencies, and national securities exchanges (NSE) because
they are transacting in digital asset securities.2

Treatment of ETH

Both the SEC and the CFTC have long-recognized ETH as a non-security digital asset or digital
commodity. In 2018, SEC staff announced that current offers and sales of ETH were not
securities transactions. 3 In October 2023, the SEC approved nine exchange traded funds (ETF)
that provide exposure to ETH through CFTC-regulated ETH commodity futures products. 4 Each
of the SEC-approved ETFs approved reference ETH as a commodity. 5

The CFTC permits CFTC registered commodity derivatives exchanges to list multiple ETH
futures contracts and continues to pursue numerous enforcement actions involving the trading of
ETH. 6 Additionally, Chairman Behnam has repeatedly articulated his position that ETH is a
digital commodity subject to the jurisdiction of the CFTC. Based on the CFTC’s and the SEC’s
actions regarding ETH, market participants have entered into ETH futures contracts on CFTC-
registered commodity derivatives exchanges to hedge ETH risk or to gain exposure to ETH. 7

Despite this history recognizing ETH as a non-security digital asset, you have consistently
refused to acknowledge that ETH is not a security. In your March 2023 testimony before the
House Committee on Financial Services you declined to answer multiple questions about
whether ETH should be considered a commodity. Your unwillingness to clarify the treatment of
ETH only exacerbates the confusion and uncertainty regarding ETH’s classification as
demonstrated by the Prometheum announcement.

2
The SEC has brought multiple enforcement actions against digital asset trading platforms, claiming they are
operating as unregistered national securities exchanges, brokers, and clearing agencies. See e.g., Compl., SEC v.
Coinbase, Inc., No. 1:23-cv-04738 (S.D.N.Y. Jun. 6, 2023); see also, Compl., SEC v. Payward, Inc., No. 3:23-
cv-06003 (N.D. Cal. Nov. 20, 2023). Available at: https://www.sec.gov/spotlight/cybersecurity-enforcement-
actions.
3
Former Director of the SEC Division of Corporation Finance William Hinman, Digital Asset Transactions: When
Howey Met Gary (Plastic) (Jun. 14, 2018), https://www.sec.gov/news/speech/speech-hinman-061418.
4
Lucy Brewster, SEC Approve 9 Ether Futures ETFs, ETF.com (Oct. 2, 2023),
https://www.etf.com/sections/news/sec-approves-9-ether-futures-etfs.
5
See e.g., NASDAQ, A proposal to list and trade the shares of the Hashdex Nasdaq Ethereum ETF under Nasdaq
Rule 5711(d) 4, 17 (Sep. 11, 2023), https://listingcenter.nasdaq.com/assets/rulebook/nasdaq/filings/SR-NASDAQ-
2023-035.pdf. (“The Sponsor is registered as a commodity pool operator with the Commodity Futures Trading
Commission.”; “CME began offering trading in Ether Futures Contracts in 2021, and each of the contract’s final
cash settlement is based on the CME CF Ether Dollar Reference Rate. The contracts trade and settle like other
cash-settled commodity futures contracts.”)
6
See e.g., Compl., CFTC v. Ooki DAO, No. 3:22-cv-5416 ¶ 52 (N.D. Cal. Sept. 9, 2022) (Virtual currencies such as
ETH, DAI, and others traded on the Ooki Protocol are ’commodities’ under the Act.”), Available at:
https://www.cftc.gov/media/7681/enfookicomplaint092222/download.
7
Press Release, Chicago Mercantile Exchange, CME Group Announces Launch of ETH Futures (Feb. 8, 2023),
https://www.cmegroup.com/media-room/press-
releases/2021/2/08/cme_group_announceslaunchofetherfutures.html.

2
SEC Digital Asset Security Approach

Your unwillingness to identify which digital assets are so-called digital asset securities has sown
confusion even for SEC regulated entities. The SEC established temporary frameworks for
broker-dealers to engage with digital asset securities both to facilitate trading as an alternative
trading system (ATS) and to provide custodial services which were in place well before your
arrival. In September 2020, the SEC’s Division of Trading and Markets issued a no-action letter
(NAL) to FINRA establishing a framework for a registered broker-dealer to operate an ATS that
trades digital asset securities, under certain conditions. 8

In December 2020, the SEC issued a policy statement and requested comment regarding the
custody of digital asset securities by broker-dealers (SPBD Statement). 9 The SPBD Statement
provides SPBDs relief for five years from enforcement actions on the basis of violations of the
SEC’s Customer Protection Rule with respect to their custody of digital asset securities, so long
as certain conditions are met. 10 Importantly, the relief is conditioned specifically on the SPBD
only custodying digital asset securities. 11 It does not allow a SPBD to custody non-security
digital assets.

According to the SPBD Statement, SPBDs must establish, maintain, and enforce written policies
and procedures. 12 These policies and procedures ensure that the SPBD’s business is limited to
digital asset securities and that all such digital asset securities are transacted in compliance with
the applicable securities laws. These written procedures are used to justify whether the digital
asset security is “offered and sold pursuant to an effective registration statement or an available
exemption from registration,” prior to conducting business in such digital asset security. 13

Prometheum

In October 2022, Prometheum’s ATS, Prometheum Ember ATS (Prometheum ATS), launched. 14
At the time, Prometheum ATS stated that it would provide trading for digital assets including
Flow, Filecoin, The Graph, Compound, and Celo. 15

8
Letter from Elizabeth Baird to Kris Dailey (Sep. 25, 2020). Available at:
https://www.sec.gov/divisions/marketreg/mr-noaction/2020/finra-ats-role-in-settlement-of-digital-asset-security-
trades-09252020.pdf.
9
Custody of Digital Asset Securities by Special Purpose Broker-Dealers, 86 Fed. Reg. 11,627, 11,629 (Feb. 26,
2021). Available at: https://www.federalregister.gov/documents/2021/02/26/2020-28847/custody-of-digital-
asset-securities-by-special-purpose-broker-dealers.
10
Id.
11
Id. (“The broker-dealer limits its business to dealing in, effecting transactions in, maintaining custody of, and/or
operating an alternative trading system for digital asset securities.”)
12
Id.
13
Id.
14
Prometheum Launches SEC Registered Market for Digital Asset Securities, Business Wire (Oct. 26, 2022),
https://www.businesswire.com/news/home/20221026005178/en/Prometheum-Launches-SEC-Registered-Market-
for-Digital-Asset-Securities.
15
Id.

3
In May 2023, Prometheum Capital obtained FINRA approval to act as a SPBD, becoming the
first and still only FINRA approved SPBD. 16 As a SPBD, Prometheum Capital’s activities are
limited to digital asset securities. It is not authorized to custody traditional securities or non-
security digital assets on behalf of customers.

In order for Prometheum Capital to make its announcement that it will custody ETH and remain
in compliance with the SEC’s SPBD regime, Prometheum Capital should have determined that
ETH is a digital asset security and that the offer and sale of ETH is either registered as a security
or qualifies for an exemption. 17 However, ETH has not been registered as a security with the
SEC, nor has the SEC indicated that the offer or sale of ETH satisfies the requirements of any
exemption. Thus, it remains unclear how Prometheum intends to offer certain digital assets
through its ATS or to implement procedures congruent with the SPBD framework. To date,
Prometheum Capital has not provided any SPBD custodial services nor has Prometheum ATS
operated as an ATS.

Implication to the Futures Markets

The regulatory treatment of ETH is not solely a matter of importance to the SEC, it directly
implicates the CFTC and the commodity futures markets, as well. If the SEC determines that
ETH is a digital asset security, CFTC registered commodity derivative exchanges may no longer
be able to list and offer ETH Futures for trading as commodity futures products. The
consequences of exchanges no longer offering ETH derivatives could have significant
implications for existing ETH market participants. Not only would market participants lose
access to an essential risk management tool, but such an action could also imperil the existing
approved ETFs and result in significant price dislocation across the ETH market. More
problematic, if the SEC determines ETH to be a digital asset security, then existing CFTC
registered entities and registrants are potentially violating securities laws by offering security
futures products absent registration pursuant to the security futures framework.

The negative repercussions of the SEC implicitly or directly classifying ETH as a digital asset
security will cascade throughout the digital asset marketplace both in the short and long term.
The immediate impact on the ETH commodity derivatives markets is apparent. However, the
broader implications for the digital asset markets may be that absent legislation, there will never
be regulatory certainty upon which one can offer digital asset derivatives in the United States.
This would have a chilling effect on U.S. digital asset markets, to the detriment of Americans
who benefit from the robust U.S. digital asset markets and federal regulation of those markets.

For the reasons stated above, please respond in writing to the following:

1. The SEC has used the following terms to describe digital assets: crypto tokens, crypto
security tokens, crypto assets, crypto asset securities, digital asset securities, and digital
asset securities that are investment contracts. Please provide definitions for each term

16
Yueqi Yang and Allyson Versprille, Crypto Startup Says it Found Path to Register with SEC Under a Broker
Rule, Bloomberg (May 23, 2023), https://www.bloomberg.com/news/articles/2023-05-23/prometheum-capital-
sees-path-to-register-with-sec-as-special-purpose-broker?sref=qvWfRb7l.
17
See infra note 11.

4
 and explain how they differ from one another.

2. Has the SEC engaged in any discussions with the CFTC regarding whether ETH is a
digital asset security or the impact of ETH being considered a security on the commodity
derivatives markets? Please provide the dates, the participants, and the substance of
those discussions, and provide copies of any draft or final documents, including agenda,
related to those discussions.

3. In a June 2022 interview, you reportedly announced that the SEC was working with the
CFTC to establish a memorandum of understanding to create a “formal deal to ensure
that trading in digital tokens had adequate safeguards and transparency.” 18 Please
provide the dates, the participants, and the substance of those discussions, and provide
copies of any draft or final agreement between the SEC and the CFTC.

4. Is ETH a digital asset security?

5. If ETH is a digital asset security, please answer the following additional questions:

a. How and when did the SEC determine that ETH was a digital asset security?
Please provide a comprehensive analysis.
b. The SPBD regime requires an effective registration statement or an exemption
from registration. Please explain how the SEC views ETH’s compliance with this
requirement.
c. In addition to registration under Section 5 or qualifying for an exemption from
registration, is ETH required to also be registered under Section 12(g) of the
Securities Exchange Act of 1934?
d. Has the SEC determined that ETH can be resold pursuant to Rule 144? If so,
please provide the analysis.
e. Does the SEC believe that CFTC-registered commodity derivatives exchanges
and futures commission merchants are violating the federal securities laws by
continuing to offer and facilitate trades in ETH derivatives? If so, has the SEC or
the CFTC communicated this position to those entities?
f. A contract for the future delivery of a single security is a security future and
subject to a joint SEC-CFTC oversight regime. Does the SEC believe that ETH is
eligible to underly a security future? If so, will the SEC work with the CFTC to
jointly designate ETH as a valid underlying security for a security futures contract
prior to Prometheum Capital custodying the asset?
g. In recent enforcement actions against digital asset trading platforms that offer
ETH for trading, the SEC has failed to identify ETH as a security. Please provide
the rationale why the SEC has not referenced ETH in its complaints against those
trading platforms. Does the SEC plan on amending its complaints in those actions
to include allegations that the platforms offer trading of ETH in contravention of

18
Stefania Palma and Patrick Jenkins, SEC chair urges ‘one rule book’ for crypto to avoid gaps in oversight,
Financial Times (Jun. 24, 2022), https://www.ft.com/content/b9466a10-a2a6-412d-acf4-086609283df2.

5
 the securities laws?

6. If ETH is not a digital asset security, please answer the following additional questions:
a. Has the SEC revised the SPBD Statement to permit the custody of non-security
digital assets? If so, when and how was this information communicated to the
public and Prometheum? Please provide a detailed analysis of how the SEC
reached this conclusion.
b. If the SEC has not revised the SPBD Statement, will the Commission prohibit
Prometheum Capital from providing custody of ETH, in violation of the SPBD
Statement?

There are significant challenges for those navigating the digital asset regulatory regime. The
current digital asset regulatory landscape presents various risks to consumers, investors, and
market participants. Allowing one market participant and regulation by enforcement to dictate
the future of digital asset regulation is unacceptable. This is precisely why Congress is working
to set guidelines for firms that participate in the digital asset markets. We appreciate your
attention to these critical matters and look forward to your response no later than April 9,
2024.

Sincerely,

_____________________________ _____________________________
Patrick McHenry Glenn “GT” Thompson
Chairman Chairman
House Committee on Financial Services House Committee on Agriculture

_____________________________ _____________________________
French Hill Dusty Johnson
Member of Congress Member of Congress

_____________________________ _____________________________
Tom Emmer Warren Davidson
Member of Congress Member of Congress

_____________________________ _____________________________
Frank D. Lucas Austin Scott
Member of Congress Member of Congress

6
_____________________________ _____________________________
Pete Sessions Doug LaMalfa
Member of Congress Member of Congress

_____________________________ _____________________________
Bill Posey David Rouzer
Member of Congress Member of Congress

_____________________________ _____________________________
Blaine Luetkemeyer Don Bacon
Member of Congress Member of Congress

_____________________________ _____________________________
Bill Huizenga Mike Bost
Member of Congress Member of Congress

_____________________________ _____________________________
Ann Wagner Tracey Mann
Member of Congress Member of Congress

_____________________________ _____________________________
Andy Barr Randy Feenstra
Member of Congress Member of Congress

_____________________________ _____________________________
Roger Williams Barry Moore
Member of Congress Member of Congress

___________________________ _____________________________
Barry Loudermilk Kat Cammack
Member of Congress Member of Congress

7
_____________________________ _____________________________
Alexander X. Mooney Brad Finstad
Member of Congress Member of Congress

_____________________________ _____________________________
John Rose Ronny L. Jackson
Member of Congress Member of Congress

_____________________________ _____________________________
Bryan Steil Marc Molinaro
Member of Congress Member of Congress

_____________________________ _____________________________
William Timmons Nick Langworthy
Member of Congress Member of Congress

_____________________________ _____________________________
Ralph Norman Mark Alford
Member of Congress Member of Congress

_____________________________ _____________________________
Dan Meuser Derrick Van Orden
Member of Congress Member of Congress

_____________________________ _____________________________
Scott Fitzgerald Lori Chavez-DeRemer
Member of Congress Member of Congress

_____________________________ _____________________________
Andrew R. Garbarino Max Miller
Member of Congress Member of Congress

8
 _____________________________ _____________________________
Young Kim Byron Donalds
Member of Congress Member of Congress

_____________________________ _____________________________
Mike Flood Michael V. Lawler
Member of Congress Member of Congress

_____________________________ _____________________________
Zach Nunn Monica De La Cruz
Member of Congress Member of Congress

_____________________________ _____________________________
Erin Houchin Andy Ogles
Member of Congress Member of Congress

cc: The Honorable Rostin Behnam, CFTC Chairman

Robert W. Cook, President and CEO, Financial Industry Regulatory Authority
Thomas W. Sexton, CEO, National Futures Association

9
 April 9, 2024

The Honorable Patrick McHenry The Honorable Glenn Thompson

Chairman Chairman
Committee on Financial Services Committee on Agriculture
U.S. House of Representatives U.S. House of Representatives
2129 Rayburn House Office Building 1301 Longworth House Office Building
Washington, DC 20515 Washington, DC 20515

Dear Chairman McHenry and Chairman Thompson:

Thank you for your letter dated March 26, 2024, concerning Prometheum, Inc.’s
(Prometheum) recent announcement that its subsidiary, Prometheum Ember Capital LLC
(Prometheum Capital), a Financial Industry Regulatory Authority (FINRA) approved Special
Purpose Broker-Dealer (SPBD), will provide custody services for Ethereum’s token, Ether
(ETH), to institutional clients.

In December 2020, the Commission issued the statement and request for comment
entitled Custody of Digital Asset Securities by Special Purpose Broker-Dealers (Crypto Asset
Securities Custody Release). 1 In the Crypto Asset Securities Custody Release, the Commission
expressed certain concerns regarding the custody of crypto asset securities and the potential
ramifications that would result from the loss or theft of crypto asset securities. The period in
which the statement and request for comment is in effect will provide the Commission and its
staff an opportunity to gain additional insight into the evolving standards and best practices with
respect to custody of crypto asset securities. During this five-year period, the Commission will
continue to evaluate its position on an ongoing basis and will consider comments to inform any
future rulemaking or other Commission action in this area.

Prometheum Capital has announced that FINRA granted it approval to operate as a

special purpose broker-dealer. Before doing business with the public, a broker-dealer generally
must become a FINRA member by submitting a new member application to FINRA’s
Membership Application Program (MAP). FINRA’s review of a broker-dealer’s new member
application is an extensive process. It serves as the gatekeeper to the broker-dealer industry and
works to protect investors by ensuring that new firms meet FINRA’s standards of admission. The
MAP process’s ultimate goal is to ensure that each applicant is capable of conducting its
business in compliance with applicable rules and regulations, and that its business practices are
consistent with just and equitable principles of trade, as required by FINRA rules.

1
See Custody of Digital Asset Securities by Special Purpose Broker-Dealers, Securities Exchange Act Release No.
90788 (Dec. 23, 2020), 86 FR 11627 (Feb. 26, 2021).
The Honorable Patrick McHenry and Glenn Thompson
Page 2

We are aware that Prometheum recently announced plans for Prometheum Capital to
provide custodial services for Ethereum’s ETH token sometime in the future. I am not privy to
any details of Prometheum’s future business plans, including whether and under which
conditions Prometheum Capital might take actual steps to custody ETH. Accordingly, I cannot
respond specifically to certain matters raised in your letter.

Please contact me at (202) 551-2100, or have your staff contact Kevin Burris, Director of
the Office of Legislative and Intergovernmental Affairs, at (202) 551-2010 if you have any
questions or comments.

Sincerely,

Gary Gensler
Chair

Enclosure: Carbon Copy List

 Enclosure: Carbon Copy List

The Honorable Mark Alford The Honorable J. Hill

U.S. House of Representatives U.S. House of Representatives

The Honorable Don Bacon The Honorable Erin Houchin

U.S. House of Representatives U.S. House of Representatives

The Honorable Andy Barr The Honorable Bill Huizenga

U.S. House of Representatives U.S. House of Representatives

The Honorable Mike Bost The Honorable Ronny Jackson

U.S. House of Representatives U.S. House of Representatives

The Honorable Kat Cammack The Honorable Dusty Johnson

U.S. House of Representatives U.S. House of Representatives

The Honorable Lori Chavez-DeRemer The Honorable Young Kim

U.S. House of Representatives U.S. House of Representatives

The Honorable Warren Davidson The Honorable Doug LaMalfa

U.S. House of Representatives U.S. House of Representatives

The Honorable Monica De La Cruz The Honorable Nicholas Langworthy

U.S. House of Representatives U.S. House of Representatives

The Honorable Byron Donalds The Honorable Michael Lawler

U.S. House of Representatives U.S. House of Representatives

The Honorable Tom Emmer The Honorable Barry Loudermilk

U.S. House of Representatives U.S. House of Representatives

The Honorable Randy Feenstra The Honorable Frank Lucas

U.S. House of Representatives U.S. House of Representatives

The Honorable Brad Finstad The Honorable Blaine Luetkemeyer

U.S. House of Representatives U.S. House of Representatives

The Honorable Scott Fitzgerald The Honorable Tracey Mann

U.S. House of Representatives U.S. House of Representatives

The Honorable Mike Flood The Honorable Daniel Meuser

U.S. House of Representatives U.S. House of Representatives

The Honorable Andrew Garbarino The Honorable Max Miller

U.S. House of Representatives U.S. House of Representatives
The Honorable Marcus Molinaro The Honorable Roger Williams
U.S. House of Representatives U.S. House of Representatives

The Honorable Alexander Mooney

U.S. House of Representatives

The Honorable Barry Moore

U.S. House of Representatives

The Honorable Ralph Norman

U.S. House of Representatives

The Honorable Zachary Nunn

U.S. House of Representatives

The Honorable Andrew Ogles

U.S. House of Representatives

The Honorable Bill Posey

U.S. House of Representatives

The Honorable John Rose

U.S. House of Representatives

The Honorable David Rouzer

U.S. House of Representatives

The Honorable Austin Scott

U.S. House of Representatives

The Honorable Pete Sessions

U.S. House of Representatives

The Honorable Bryan Steil

U.S. House of Representatives

The Honorable William Timmons

U.S. House of Representatives

The Honorable Derrick Van Orden

U.S. House of Representatives

The Honorable Ann Wagner

U.S. House of Representatives