Katherine Ross

Nevada’s Financial Institutions Division moved to place Prime Trust into receivership, a designation of insolvency. 



The crypto company sought receivership from the state’s enforcement agency after it received a cease-and-desist order from the regulator on June 21.&nbsp;



In a Tuesday court <a href="https://business.nv.gov/uploadedFiles/businessnvgov/content/News_Media/Press_Releases/Prime%20Core%20Technologies%20et%20al%20Petition.pdf">filing</a>, the state agency <a href="https://business.nv.gov/News_Media/Press_Releases/2023/Financial_Institutions/Nevada_Financial_Institutions_Division_files_court_petition_to_place__Prime_Trust_LLC_in_receivership/">asked</a> the court to impound the assets and related property of Prime Trust immediately. It also moved to enjoin Prime’s employees from removing Prime property without the permission of the court-mandated receiver.&nbsp;



<a href="https://blockworks.co/tag/prime-trust">Prime Trust</a>, per the Monday filing, was only $861,000 short of paying back its outstanding crypto-based obligations to clients. But the company’s outstanding fiat obligations were said to be far steeper: $85,670,000 owed — with just $2,904,000 of fiat reserves on its balance sheet.&nbsp;



The latter discrepancy, per the filing, amounts to an $82,766,000 hole.&nbsp;



Prime Trust allegedly “[purchased] additional digital currency using customer money from its omnibus accounts” from December 2021 to March 2022 after Prime “discovered that it was unable to access the Legacy Wallets and the cryptocurrency within.”



Prime Trust received the cease-and-desist after <a href="https://blockworks.co/news/bitgo-wont-buy-prime-trust">BitGo confirmed that it was backing out</a> of its signed letter of intent to acquire the business.&nbsp;



“The overall financial condition of Respondent has considerably deteriorated to a critically deficient level, and Respondent is now in a position where it is in an unsafe or unsound condition to transact business and/or if it were to continue to operate it would be in an unviable and/or unsafe manner,” the FID said in its June 21 filing.&nbsp;



The cease-and-desist <a href="https://fid.nv.gov/uploadedFiles/fidnvgov/content/Opinion/Prime%20Trust%20-%20C%20and%20D%206.21.23.pdf">confirmed</a> that the company, on the same day the filing was made public, was unable to “honor customer withdrawals due to a shortfall of customer funds caused by a significant liability on the Respondent’s balance sheet owed to customers.”



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">After considerable effort and work to find a path forward with Prime Trust, BitGo has made the hard decision to terminate its acquisition of Prime Trust. This decision was not made lightly and BitGo remains committed to our mission to deliver trust in digital assets.&mdash; BitGo (@BitGo) <a href="https://twitter.com/BitGo/status/1671869979321577472?ref_src=twsrc%5Etfw">June 22, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



BitGo and Prime Trist had <a href="https://blockworks.co/news/bitgo-bails-out-prime-trust">originally announced the letter of intent</a> after <a href="https://blockworks.co/news/prime-trust-said-to-be-scrambling-for-emergency-cash-package">Blockworks reported that Prime Trust</a> was looking to raise $25 million in a weekend.



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Nevada regulator claims Prime Trust owes customers $85.7M in fiat alone

Shalini Nagarajan

Cryptocurrency custodian Prime Trust is experiencing a significant deficit and won’t be able to fulfill all customer withdrawal requests, according to a cabinet-level Nevada state agency.



This notice was made available on the regulatory body&#8217;s website shortly after <a href="https://blockworks.co/news/bitgo-wont-buy-prime-trust">BitGo stated its decision to cancel</a> the prospective acquisition of Prime Trust.



Prime Trust has been incapable of fulfilling withdrawal requests since about June 21 “due to a shortfall of customer funds,” the regulator said in its cease-and-desist <a href="https://fid.nv.gov/uploadedFiles/fidnvgov/content/Opinion/Prime%20Trust%20-%20C%20and%20D%206.21.23.pdf" target="_blank" rel="noreferrer noopener">order</a> published Thursday. 



The crypto custodian was ordered to cease all activities as it has “considerably deteriorated to a critically deficient level” and is now in an “unsafe or unsound condition to transact business,” the state said.



Prime Trust has “materially and willfully breached its fiduciary duties to its clients,” it added.



<h2 class="wp-block-heading">Desperate efforts for emergency funding&nbsp;</h2>



Nevada’s Financial Institutions Division found that Prime Trust had a negative stockholders&#8217; equity of $12 million as of March 2023, which means the company owed more money than it had.



Blockworks <a href="https://blockworks.co/news/prime-trust-said-to-be-scrambling-for-emergency-cash-package">reported</a> earlier this month that Prime Trust had been scrambling to raise millions of dollars through emergency fundraising. It had been in talks with a bunch of potential financiers, with some executives considering a $25 million investment would stabilize the balance sheet.



Subsequently, BitGo <a href="https://blockworks.co/news/bitgo-bails-out-prime-trust">struck a preliminary deal</a> to acquire the company for an undisclosed amount. But the deal was scrapped on Thursday.



<h2 class="wp-block-heading">Prime Trust given 30-day window to request hearing</h2>



Many companies including digital asset firm <a href="https://hayvnglobal.com/market-commentary/prime-trust-update" target="_blank" rel="noreferrer noopener">Hayvn</a> and fiat on-ramp service <a href="https://support.stably.io/en/articles/8039846-prime-trust-halting-deposit-withdrawal?_ga=2.224471130.1963557396.1687454592-813931187.1687454592&amp;_gl=1*1iirsmx*_ga*ODEzOTMxMTg3LjE2ODc0NTQ1OTI.*_ga_R2T8PD7439*MTY4NzQ1NDU5Mi4xLjEuMTY4NzQ1NDcxMS41My4wLjA." target="_blank" rel="noreferrer noopener">Stably</a> announced that Prime Trust had halted deposits after being ordered to do so by the Nevada regulator.



“Please take action immediately to stop sending client custody assets to Prime Trust, especially digital assets,” Stably said.



Prime Trust didn’t immediately return Blockworks’ request for comment.



Prime Trust can choose to ask for a hearing within 30 days. If it doesn’t, the order will become final.



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Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



The Lightspeed newsletter is all things Solana, in your inbox, every day. <a href="https://blockworks.co/newsletter/lightspeed">Subscribe to daily Solana news</a> from Jack Kubinec and Jeff Albus.