OPINION:
When it comes to the threat posed to America by the Chinese government, one thing has become abundantly clear: The Chinese Communist Party is no longer simply trying to compete with American companies — it’s trying to eliminate them.
Someone might want to inform U.S. financial regulators, who these days seem more willing to legitimize CCP-backed companies than to prevent them from further infiltrating the U.S. financial system.
Take the emergence of Chinese-owned broker-dealers in U.S. capital markets. Webull, for example, operates a retail stock trading platform that is registered with the Securities and Exchange Commission and the Financial Industry Regulatory Authority, known as FINRA.
Webull even sponsors the NBA’s Brooklyn Nets.
Sounds safe and trustworthy, right? But upon closer inspection, Webull admits that it’s “both a U.S. and Chinese company.” Webull is owned by Hunan Fumi Information Technology Co., which has ties to the Chinese telecommunications giant Xiaomi, a company that reportedly assisted the CCP’s efforts to surveil and suppress Chinese citizens. Webull also has offices and employees — including FINRA “registered representatives” and technologists — in China.
As a broker-dealer, Webull collects and holds sensitive personal and financial information belonging to its American customers, including Social Security numbers.
So how can the SEC and FINRA assure the investing public that their personal information is safe from the CCP and that Webull’s employees and operations in China are compliant with U.S. laws and regulations?
The short answer is, they can’t. Chinese law generally requires Chinese companies to provide to the CCP whatever data and information it demands, potentially exposing Webull’s systems and Americans’ personal information to the CCP.
And Webull’s personnel and operations in China are far beyond the reach of the SEC and FINRA.
As a member of the Financial Services Committee, I sounded the alarm on CCP-connected broker-dealers like Webull.
Over the past two years, a bipartisan group of lawmakers led by Republican Sens. Tommy Tuberville of Alabama, Ted Cruz of Texas, Mike Braun of Indiana, Rick Scott of Florida and Roger Marshall of Kansas — along with Reps. Jim Banks, Indiana Republican, Mike Lawler, New York Republican and Brad Sherman, California Democrat — have called on the SEC and FINRA to mitigate the substantial risks that CCP-connected broker-dealers pose to the U.S. capital markets and investors.
Another troubling example of this problem is Prometheum, a cryptocurrency platform that recently touted its status as the first-ever SEC- and FINRA-registered “special purpose broker-dealer.”
Now that the SEC and FINRA have placed their stamp of approval on Prometheum, the company is touting itself as the responsible, regulated alternative to other crypto platforms.
While Prometheum doesn’t have any crypto revenue to speak of, its ties to the CCP are certainly real, as Mr. Tuberville recently uncovered. Prometheum claims to be “an American-born, bred, and controlled company.”
But its co-CEO acknowledged in recent testimony before Congress that Prometheum is part-owned by a Chinese company, Shanghai Wanxiang Blockchain Inc.
Wanxiang’s founder was a prominent member of the CCP, and his son, Wanxiang’s current CEO, committed to “always listen to the Party and follow the Party.” Wanxiang has held a seat on Prometheum’s board of directors for years.
In 2018, Prometheum and Wanxiang formally agreed to have Wanxiang develop Prometheum’s cryptocurrency trading and blockchain technology.
Although Prometheum’s co-CEO recently told Congress that it abandoned this joint endeavor around December 2019, Prometheum continued to tell investors into 2021 that it “uses Wanxiang as their sole project developer and relies on Wanxiang’s ability to create and maintain a successful platform to develop its technology.”
Prometheum now says it built its technology on its own, although how exactly it did this remains unclear.
Mr. Tuberville, joined by GOP Reps. Blaine Luetkemeyer of Missouri, Barry Loudermilk of Georgia, Ralph Norman of South Carolina, Byron Donalds of Florida and Mark Alford of Texas, recently called on the Justice Department, the SEC and FINRA to investigate Prometheum’s seemingly contradictory public statements and whether the company and its executives lied to Congress, investors or both.
Perhaps this shouldn’t be a surprise to regulators. On top of its relationship with Wanxiang, Prometheum has disclosed in its SEC filings extensive conflicts of interest, and its executives have connections to financial firms with long regulatory rap sheets.
They include companies such as Fiero Brothers Inc., StockCross Financial Services, Genesis Securities and Network 1 Financial Securities (which has its own ties to China).
Prometheum’s auditor has also been sanctioned for failing to reasonably supervise unregistered Chinese firms in audits of 12 different public companies with operations in China.
With all this baggage, one might reasonably question why the SEC and FINRA thought it was a good idea to make Prometheum the poster child for how to theoretically operate a “regulated” crypto business? As the old saying goes, you are the company you keep.
In stark contrast to the SEC under former Chairman Jay Clayton, which blocked the potential sale of the Chicago Stock Exchange to China-based investors in 2018, it’s hard to find evidence that SEC Chairman Gary Gensler and FINRA CEO Robert Cook are doing anything to address Congress’ bipartisan concerns about CCP-connected broker-dealers.
If the SEC and FINRA won’t use their considerable resources — including thousands of enforcement lawyers and examiners and multibillion-dollar budgets— to protect Americans from CCP-connected financial firms, then perhaps it’s time for congressional appropriators to take an even closer look at their funding. This is particularly true for FINRA, which has largely avoided congressional oversight for years.
Preventing the Chinese government from eliminating American competition and instituting a new global order is the most serious risk facing the United States today.
It’s past time for the SEC and FINRA to do their part by preventing CCP-connected companies from exploiting U.S. capital markets and potentially accessing the personal data of millions of American investors.
• Lee Zeldin is a former member of Congress who served on the Committee on Financial Services.
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