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Following a cease and desist order, the Nevada Division of Financial Institutions again took action against cryptocurrency custodian Prime Trust by filing a petition to appoint a trustee.
In a June 26 filing, the regulator petitioned the Nevada Eighth District Court for a temporary restraining order and an order to appoint a trustee of Prime Trust Technologies, which would include its cryptocurrency custodian division. Prime Trust negotiated a receivership with the regulator based on a “substantial shortfall between its assets and liabilities”.
The petition called for an immediate appointment, arguing that there was a risk of “irreparable harm” to clients, the public, and “credibility in the emerging cryptocurrency market”:
“Prime is in a precarious financial condition and/or is insolvent. In addition, Prime’s condition will only get worse as customers continue to abandon 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
Documentation from the Financial Institutions Department included allegations that Prime Trust contracted Fireblocks to hold all of its crypto assets in 2019, with a change in leadership in 2020. In January 2021, the custodian reintroduced legacy wallet forwarding addresses to customers “due to restrictions” with Fireblocks. Prime Trust has not had access to its users’ legacy wallets since December 2021 and has purchased cryptocurrency with customer funds.
Related: TrueUSD assures users it has nothing to do with the troubled Prime Trust
According to the petition, Prime Trust owes more than $85 million in fiat money to its customers, but only had about $2.9 million at the time of filing. The Nevada state regulator said Prime Trust’s digital asset liabilities were smaller, but still significant: the firm owed more than $69.5 million in crypto, but it had about $68.6 million.
The legal move follows a Nevada regulator issuing a cease and desist order on June 21 stating that Prime Trust’s financial health has “significantly deteriorated” and the firm “is unable to process customer withdrawals due to a lack of customer funds.” . Wallet infrastructure provider and digital asset custodian BitGo announced on June 22 that it plans to cancel its acquisition of Prime Trust.