Nevada has asked a federal court to appoint a receiver for Prime Trust, alleging that the custodian used customer funds to buy cryptocurrencies after losing access to digital wallets containing tens of millions of dollars in assets.
The 30-page receivership petition filed Monday demands an immediate impounding of all assets of Las Vegas-based Prime Trust, as well as its documents and records. It also asks the court to enjoin Prime, including its officers and agents, from touching any of the company's funds. The Nevada Financial Institutions Division had ordered Prime Trust to halt all deposits of fiat and digital assets from within the state of custody. Prime Trust didn't immediately return requests for comment.
Prime Trust once played a significant role in the infrastructure of crypto markets, holding funds on behalf of companies like FTX, Binance.US and Celsius Network. Custodians typically hold dollars and digital assets on behalf of customers, putting the funds in their own accounts. The firms are meant to be among the safer parts of the financial system, not engaging in risky activities.
Around December 2021, Prime discovered that it was unable to access some of its wallets where it stored cryptocurrency, according to the petition. From December 2021 to March 2022, Prime purchased additional digital currency using customer money from its omnibus customer accounts to satisfy withdrawals.
"Prime is reported to have been making efforts to regain access to the Legacy Wallets," the petition said. "However, as of the date of this Petition, Prime has been unable to do so."
The company, which is a unit of Prime Core Technologies Inc., currently owes $85.67 million in fiat to its clients, the petition said, "but has $2,904,000 in fiat currency." Prime also owes $69.5 million to its clients in digital assets but only has $68.65 million in digital currency, it said.
"As such, Prime would be unable to satisfy all of its withdrawals," the petition said.
The petition asks the court to appoint a receiver to take over the day-to-day operations of the company and examine its finances, in order to decide whether it should be liquidated or revamped. The motion was made with the Eighth Judicial District Court of Nevada, after determining "that Prime is operating in an unsafe and unsound manner and is insolvent," as alleged in its prior cease-and-desist order from June 21.
Custodian BitGo dropped its plans to purchase Prime Trust on June 22, the day Nevada's cease-and-desist order, alleging a shortfall of customer funds, became known.
