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Nevada's powerful financial overseer has taken decisive action against Prime Trust, a company renowned for its cryptocurrency custodial services. The move was prompted by mounting concerns about the firm's financial stability and potential harm to its customer base.
The Financial Institutions Division of Nevada has approached the state's Eighth Judicial District Court, seeking a temporary restraining order. Additionally, they have requested the appointment of a receiver to supervise Prime Trust Technologies, including its controversial cryptocurrency division. In a troubling revelation, the company has consented to this arrangement due to a significant disparity between its assets and liabilities.
Highlighting the urgency of the situation, the financial watchdog has called for swift action, fearing "irreparable harm" to the company's clients, the general public, and the burgeoning trust in the cryptocurrency market. It has exposed the concerning fact that Prime Trust's financial instability could worsen with continued customer withdrawals, further damaging the firm's already fragile status.
The petition outlined Prime Trust's tumultuous journey in recent years. In 2019, the custodian outsourced all of its cryptocurrency asset storage to Fireblocks. However, a change in leadership in 2020 resulted in a return to legacy wallet forwarding addresses for clients, citing limitations with Fireblocks. Notably, since December 2021, the company has been unable to access these legacy wallets and, controversially, utilized client funds to acquire cryptocurrency.
The petition drew attention to Prime Trust's substantial debt, with outstanding fiat balances owed to clients exceeding $85 million at the time of filing, while available funds amounted to just over $2.88 million. Furthermore, the company's liability in digital assets was staggering, surpassing $69.49 million, while possessing approximately $68.61 million.
This legal maneuver comes after the Nevada regulator issued a cease and desist order on June 21. The order cited Prime Trust's significant decline in financial health and its inability to fulfill customer withdrawal requests due to insufficient funds. Adding to Prime Trust's troubles, BitGo, a prominent wallet infrastructure provider and digital asset custodian, withdrew from its acquisition plans on June 22.
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