Nevada’s Financial Institutions Division has taken further action against crypto custodian Prime Trust, following the filing of a cease and desist order, by petitioning for the appointment of a receiver.
In a recent filing on June 26, the regulator sought a temporary restraining order and the appointment of a receiver to Prime Trust Technologies, which includes its crypto custodian division.
The decision for receivership was agreed upon by Prime Trust due to the significant deficit between its assets and liabilities.
The petition emphasized the need for immediate action, citing the risk of “irreparable harm” to customers, the public, and the confidence in the cryptocurrency market.
The regulator expressed concerns over Prime Trust’s financial condition, stating that the custodian was unsafe and possibly insolvent.
The situation was expected to worsen as customers continued to withdraw from Prime Trust.
According to the filing, Prime Trust had engaged Fireblocks in 2019 to store all its crypto assets and underwent a change in management in 2020.
In January 2021, the custodian reintroduced legacy wallet forwarding addresses to customers due to limitations with Fireblocks.
Since December 2021, Prime Trust has been unable to access its users’ legacy wallets and had been purchasing crypto using customer funds.
The petition revealed that Prime Trust owed over $85 million in fiat currency to its clients but had only approximately $2.9 million available at the time of filing.
In terms of digital assets, the custodian’s liability amounted to over $69.5 million, with holdings of around $68.6 million.
The regulatory action came after Nevada’s financial watchdog issued a cease and desist order on June 21, citing Prime Trust’s deteriorating financial condition and its inability to fulfill customer withdrawals due to a shortfall of funds.
Following this development, BitGo, a wallet infrastructure provider and digital asset custodian, announced on June 22 that it would cancel its planned acquisition of Prime Trust.
The appointment of a receiver and the initiation of legal proceedings against Prime Trust highlight the seriousness of the situation.
The financial condition of the custodian has raised concerns among regulators and industry participants, who are keen to safeguard the interests of customers and maintain trust in the cryptocurrency market.
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