Following the filing of a cease and desist order, Nevada’s Financial Institutions Division has again moved against crypto custodian Prime Trust by petitioning for the appointment of a receiver.
In a June 26 filing, the regulator petitioned the Eighth Judicial District Court of Nevada for a temporary restraining order and an order appointing a receiver to Prime Trust Technologies, which would include its crypto custodian arm. Prime Trust has agreed to the receivership along with the regulator based on the “substantial deficit between its assets and liabilities.”
The petition called for an immediate appointment, claiming there was a risk of “irreparable harm” to customers, the public and “confidence in the emerging market of cryptocurrency”:
“Prime is in an unsafe financial condition and/or is insolvent. Additionally, Prime’s condition will only progressively worsen as customers continue to withdraw from Prime.”
Nevada Financial Institutions Division files a petition to place Prime Trust LLC in receivership with the Eight Judicial District Court of Nevada. Read the full release and find a copy of the petition here: https://t.co/1A1NzChBGx pic.twitter.com/78vaHKrhPu
— Nevada Department of Business & Industry (@NevadaDBI) June 27, 2023
The Financial Institutions Division’s filing included claims that Prime Trust contracted Fireblocks to store all its crypto assets in 2019 and underwent a change in management in 2020. The custodian reintroduced legacy wallet forwarding addresses to customers in January 2021 “because of limitations” with Fireblocks. Prime Trust has not had access to its users’ legacy wallets since December 2021, and it purchased crypto using customer funds.
According to the petition, Prime Trust owed more than $85 million to its clients in fiat but had roughly $2.9 million as of the filing. The Nevada regulator said Prime Trust’s liability in digital assets was smaller but still significant: The firm owed more than $69.5 million in crypto but held roughly $68.6 million.
The legal move followed the Nevada regulator issuing a cease and desist order on June 21, claiming Prime Trust’s financial condition had “considerably deteriorated,” and the firm was “unable to honor customer withdrawals due to a shortfall of customer funds.” Wallet infrastructure provider and digital asset custodian BitGo announced on June 22 that it planned to cancel its acquisition of Prime Trust.