Prime Trust, a Las Vegas-based cryptocurrency custodian, has filed for Chapter 11 bankruptcy protection, marking another setback for the embattled financial technology company.
This bankruptcy move comes after Prime Trust was placed under receivership by Nevada regulators in late June due to insolvency issues, preventing the company from serving its customers. These troubles follow a series of difficulties faced by Prime Trust and its affiliated companies over the past year.
In a notable incident, rival crypto custodian BitGo initially expressed interest in acquiring Prime Trust in June, but the deal fell through only two weeks later without explanation.
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Around the same time, a Prime Trust subsidiary named Banq filed for bankruptcy due to alleged mismanagement under former CEO Scott Purcell. Additionally, Prime Trust partner Abra faced a cease and desist order in Texas over securities fraud allegations.
The critical blow came when the Nevada Financial Institutions Division (NFID) took steps to shut down Prime Trust’s operations, citing breaches of fiduciary duties and violations of Nevada trust laws. The NFID revealed that Prime Trust had misused customer funds for withdrawals since December 2021, following the loss of access to certain customer cryptocurrency wallets.
Regulatory filings indicated that Prime Trust owed over $82 million to customers due to missing fiat currency deposits, despite holding $68 million in digital assets under custody. However, most of these funds were tied up in an illiquid token rather than Bitcoin.
Amidst the turmoil, other crypto companies that stored funds with Prime Trust hurried to reassure their customers and withdraw their assets after the cease and desist order. Yet, some firms like Coinbits found themselves with customer funds still trapped within the bankrupt custodian.
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Prime Trust stated that the bankruptcy filing will enable a structured assessment of options, including a potential sale of the company’s assets. However, the series of challenges faced in the past year could complicate the search for a buyer.
As per the filing, John Guedry, former president of the Bank of Nevada, will act as the receiver and lead a restructuring committee, while Judge Susan Johnson of the eighth Judicial District Court of the State of Nevada will oversee the proceedings.
Prime Trust will continue operating as “debtors-in-possession” under the jurisdiction of the bankruptcy court. The company plans to file several motions to facilitate a systematic assessment of strategic alternatives, potentially including a sale of its assets and operations as a going concern.
Founded in 2016, Prime Trust initially offered blockchain-based infrastructure services, providing application programming interfaces (APIs) to financial institutions, fintech firms, crypto exchanges, and payment platforms. Last year, the company received recognition as America’s Best Startup Employer by Forbes and earned a spot in CB Insights’ “Blockchain 50.”
While Prime Trust believes that Chapter 11 proceedings will offer transparency and value optimization for clients and stakeholders, the filing likely signals the end of its journey as a major cryptocurrency custodial service provider, a position it held just over a year ago.
Information for this briefing was found via Decrypt, Coin Telegraph, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
