Crypto Firm Prime Trust Placed Into Receivership
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Nevada’s Financial Institutions Division (FID) has taken control of crypto custodian Prime Trust, halted its operations, and is seeking a receiver for the firm, according to an announcement made by the regulator on Tuesday.
KEY TAKEAWAYS
- Nevada’s FID has placed crypto firm Prime Trust into receivership.
- In a court filing, it is alleged that Prime Trust learned that it lost access to various crypto wallets in December 2021 and used clients’ fiat deposits to purchase new crypto for use in processing other clients’ crypto-denominated withdrawals.
- Currently, Prime Trust only has 3.5% of the cash owed to its clients, and there is also a $900,000 shortfall in crypto assets.
Prime Trust Only Holds 3.5% of Cash Owed to Clients
The receivership request filed in Nevada on Tuesday states that Prime Trust, which was previously a financial infrastructure provider for Binance US and others, owes its clients more than $85 million in fiat currency, with only $3 million available on hand. Additionally, the company owes $69.5 million in crypto and holds $68.6 million in crypto assets.
This move from Nevada’s FID comes only days after custodian BitGo withdrew its bid to acquire Prime Trust. It also follows a cease-and-desist order issued by the state, which claimed that Prime Trust was on the verge of insolvency.
Even more troubling, the filing reveals that Prime Trust is operating with a $12 million equity deficit and is facing challenges accessing some of its crypto wallets.
While Prime Trust had entered into an agreement with Fireblocks to manage its crypto assets in 2020, new management reverted back to a legacy wallet management system in January 2021. It was then discovered in December 2021 that Prime Trust was unable to access these legacy wallets and the cryptocurrencies held within them.
While Prime Trust was unable to access these wallets, it is alleged the firm used its clients’ fiat currency accounts to purchase crypto to be used for processing crypto-denominated withdrawals.
Prime Trust’s efforts to regain access to crypto wallets, while still ongoing, have been unsuccessful. The receivership aims to appoint a receiver to oversee Prime Trust’s operations, examine its finances, and determine the best course of action to protect clients, potentially through rehabilitation or liquidation.
Although a string of failures of various crypto companies started more than a year ago around the time of the collapse of Terra and its associated Luna crypto asset, crypto assets have recovered recently. Bitcoin has hit a new high for the year on the back of crypto-related announcements from various legacy financial institutions such as BlackRock’s ETF filing and the launch of a new crypto exchange backed by the likes of Charles Schwab and Fidelity.
Correction: June 27, 2023—An previous version of this article misidentified the wallet management system Prime Trust was using in January 2021. It was a legacy system.