In a recent submission to the Eighth Judicial District Court in Las Vegas, the Nevada Financial Institutions Division has expressed its intention to take decisive action against the crypto custodian Prime Trust. The regulatory body seeks to not only shut down Prime Trust but also swiftly seize its property, assets, books, papers, documents, and records. The state’s financial overseer aims to place Prime Trust under receivership, ensuring a comprehensive resolution to the matter.
Nevada Regulator Moves to Shut Down Prime Trust as Crypto Custodian Faces Insolvency and Asset Accessibility Issues
Nevada’s financial watchdog has raised concerns about the financial status of crypto custodian Prime Trust. In a recent development, the Nevada Financial Institutions Division revealed that Prime Trust faced insolvency and was unable to fulfill customer withdrawal requests.
This disclosure, made five days ago, prompted the regulator to assert that Prime Trust had breached its fiduciary responsibilities. Consequently, on the same day, Prime Trust took the step of suspending both deposits and withdrawals, compounding the situation further.
Now a filing submitted to the Eighth Judicial District Court in Las Vegas and put forward by the regulator’s commissioner Sandy O’laughlin stresses that Prime Trust should be placed into receivership immediately.
The regulator wants to immediately impound the property including all assets, documents, and the firm’s application programming interface (API). The regulator wants to “appoint a receiver over Prime Trust with the authority to enter the business and immediately oversee operations.”
The filing says that in 2019, the company enlisted the services of Fireblocks, a digital asset security firm to safeguard assets. The migration to Fireblocks’ platform was successfully carried out in 2020, rendering Prime Trust’s original wallet inactive.
With the arrival of new management in the same year, they were assured by their predecessors that all cryptocurrency assets could be accessed through the Fireblocks platform. In January 2021, the company reintroduced legacy wallet forwarding addresses for customers.
“Prime purportedly believed that these legacy wallets existed on the Fireblocks platform or were configured to forward to wallets accessible on the Fireblocks platform,” the filing details. Unfortunately, in December 2021, a revelation unfolded—the company found itself unable to access the legacy wallets and the digital currency they contained.
Faced with this predicament from December 2021 to March 2022, the company allegedly resorted to utilizing customer funds to procure additional digital currency in order to fulfill withdrawals from the inaccessible legacy wallets.
Despite relentless efforts, Prime Trust has yet to regain access to the elusive legacy wallets as of the present day. While it tried to stave off withdrawals with other funds available, Nevada’s financial watchdog says that in recent times withdrawals became more frequent and larger.
“As such, at or about the time of the instant petition, it is understood that Prime’s financial status is such that it owes, in fiat currency, $85,670,000 to its clients but has $2,904,000 in fiat currency (equaling an $82,766,000 fiat currency liability),” the court filing discloses. “As to digital currency, Prime owes $69,509,000 to its clients but only has $68,648,000 in digital currency.”
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