Nevada Financial Regulator Urges Receivership for Prime Trust
After issuing a cease and desist order, the Financial Institutions Division of Nevada has once more taken action against the cryptocurrency custodian, Prime Trust. This time, they have sought to appoint a receiver.
A receivership is a court-appointed tool aiding creditors in retrieving defaulted funds and helping companies avoid bankruptcy, thus easing the recovery process for lenders when a borrower defaults on a loan.
In a document filed on June 26th, the regulatory body requested the Eighth Judicial District Court of Nevada for a provisional restraining order and a directive to appoint a receiver to Prime Trust Technologies. This request encompasses the company's cryptocurrency custodial division.
Prime Trust has consented to the receivership in accordance with the regulatory authority, given the considerable shortfall between its assets and liabilities.
The plea demanded an immediate appointment, asserting that there was a potential for "irreparable harm" to clients, the public, and the "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.
The filing by the Financial Institutions Division asserted that Prime Trust enlisted Fireblocks in 2019 to store all of its Bitcoin and crypto assets and experienced a management reshuffle in 2020.
Due to certain "limitations" with Fireblocks, the custodian restored old wallet forwarding addresses for customers in January 2021. However, Prime Trust has been unable to access its users' legacy wallets since December 2021, and has been buying crypto using funds from its customers.
The petition stated that Prime Trust owed its customers over $85 million in fiat, yet held approximately $2.9 million at the time of the filing. The regulator from Nevada indicated that while Prime Trust's liabilities in digital assets were less, they were still substantial. The company had a debt of over $69.5 million in Bitcoin and crypto, but it only possessed around $68.6 million.
Coinbase Director, Conor, reveals the breakdown of Prime Trust’s Bitcoin and crypto holdings in response to a tweet from db.
This legal action came after the Nevada regulator issued a cease and desist order on June 21st, alleging that Prime Trust's financial status had "considerably deteriorated," and the company was "unable to honor customer withdrawals due to a shortfall of customer funds."