What's the true definition of a prop firm? I ask, because I'm confused.

I can clearly see that there are two types of going concerns that operate under label "prop firm." There are firms who solicit traders who have a professional background and those who solicit retail traders, many of whom have little to no trading experience.

I'm inclined to believe the former is a prop firm and the latter is not, in the true sense of the term.

Am I looking at this incorrectly?

The truest definition of a proprietary trading firm is one where you trade with someone else's money. So you front 0 (or minimal) of the capital and therefore have lower risk.

Most of the online prop firms are simulation futures environments, where you trade in a sim or demo account and your trades never hit the tape. There are pros and cons to this approach of sim trading, but as long as the company actually pays out as expected most dont seem to care and like the accessibility of these online services.

Since you can't really get a degree in trading, by professional trader do you mean the IRS definition? https://www.irs.gov/taxtopics/tc429
Or do you mean one who uses trading as an occupation? I think the majority of the customer base of the sim prop firms are retail traders, but I would assume that since the risk to the user is low/minimal the SEC wouldn't care as much about the risk these provide, as opposed to say options trading.

I have no involvement in this case or in the futures eval space. I am not a lawyer. I trade my own cash account. Last night I read for the first time the Complaint and Statutory Restraining Order.
I think anyone interested in this situation should spend an hour or two reading through the actual court documents. You will learn a great deal!
In the Complaint, read paragraphs 20-58 and Counts II and V. In the Statutory Restraining Order read paragraphs 3-7. It is Eye Opening!

Some are saying this case involves forex and so does not impact the futures/commodity eval space. This is completely false. I urge everyone to read the actual court documents. That's why I uploaded them.

If people will read the court documents we can have an informed discussion.

(D)Retail commodity transactions
(i)ApplicabilityExcept as provided in clause (ii), this subparagraph shall apply to any agreement, contract, or transaction in any commodity that is—
(I)
entered into with, or offered to (even if not entered into with), a person that is not an eligible contract participant or eligible commercial entity; and
(II)
entered into, or offered (even if not entered into), on a leveraged or margined basis, or financed by the offeror, the counterparty, or a person acting in concert with the offeror or counterparty on a similar basis.
(ii)ExceptionsThis subparagraph shall not apply to—
(I)
an agreement, contract, or transaction described in paragraph (1) or subparagraphs [7] (A), (B), or (C), including any agreement, contract, or transaction specifically excluded from subparagraph (A), (B), or (C);
(II)
any security;
(III)a contract of sale that—
(aa)
results in actual delivery within 28 days or such other longer period as the Commission may determine by rule or regulation based upon the typical commercial practice in cash or spot markets for the commodity involved; or
(bb)
creates an enforceable obligation to deliver between a seller and a buyer that have the ability to deliver and accept delivery, respectively, in connection with the line of business of the seller and buyer; or
(IV)
an agreement, contract, or transaction that is listed on a national securities exchange registered under section 6(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78f(a)); or
(V)
an identified banking product, as defined in section 27(b) of this title.
(iii)Enforcement
Sections 6(a), 6(b), and 6b of this title apply to any agreement, contract, or transaction described in clause (i), as if the agreement, contract, or transaction was a contract of sale of a commodity for future delivery.
(iv)Eligible commercial entity
For purposes of this subparagraph, an agricultural producer, packer, or handler shall be considered to be an eligible commercial entity for any agreement, contract, or transaction for a commodity in connection with the line of business of the agricultural producer, packer, or handler.

When I say professional trader, I am thinking along the lines of a trader who trades (or traded) for a hedge fund or an investment bank.

I believe we will soon see this impact the unregulated futures evaluation prop firm companies as well. Earlier this week Deel stopped providing payout services to the unregulated futures evaluation prop firms.

I read the documents by cftc but to me the issues lied in mff acting as a broker. I have been funded with earn2trade in the past, which uses futures.
Once you get funded orders go to actual market. I even proved it with a video.
That was some years ago but basically with futures you can immediately check if you are A-booked or not.

Agreed!

Companies like Earn2Trade, TopStep, Apex are not brokers, they don't accept deposits.

to add to that, when I was funded by Earn2trade, once I passed the evaluation I signed a legal contract with another company.
When I was about to withdraw profits, I asked if I could convert these into discounts for evaluations and they said NO.
Basically there was a clear division between companies doing the selections and the ones allocating capital.

To me this is a clear sign that companies were very serious.

Honestly I don't see any problem with MFF business model either.

I believe we will soon see this impact the unregulated futures evaluation prop firm companies as well. Earlier this week Deel stopped providing payout services to the unregulated futures evaluation prop firms.

I don't think Deel stopping payment services to prop firms necessarily means there's a problem with eval prop firms.

For example, I know with Stripe they won't allow you to create a business selling crypto. Yet we have Coinbase, so buying and selling crypto isn't necessarily a problem, just that Stripe as a payment processor doesn't allow it.

I suspect Deel is similar. Going to Deel's website, they look like they want to position themselves as a SaaS HR and Payroll company. Based on that, eval prop firms really just aren't a good fit for Deel's core business.