Following a finding by Nevada authorities that it was missing about $83 million in customer assets, a retail trust firm with a focus on cryptocurrencies located in Las Vegas is anticipated to be placed into receivership.
The Nevada Department of Business and Industry’s financial institutions division filed a petition with the Eighth Judicial District Court on Monday to put Prime Trust, a business-to-business-to-consumer company that traded cryptocurrency and created financial technology software for clients, into receivership in order to prevent the potential insolvency from getting worse.
“As Prime becomes unable to satisfy customer withdrawals, aside from the immediate harm to the customers who will lose their money with Prime, the public at large will be harmed in the form of harm to the public’s confidence in financial institutions, specifically including harm to the confidence in the emerging market of cryptocurrency,”
the state claimed in its petition.
The action was taken less than a week after the business received a cease-and-desist letter from the financial institutions section on June 21. At the time, the state claimed that the business was unable to satisfy consumer withdrawal requests due to a shortage of customer cash.
According to the petition, Prime Trust, a Nevada LLC that is entirely controlled by Prime Core Technologies, wanted the receivership to take over the company’s daily activities. According to a press release from the state on Tuesday, the receivership will decide whether the business should be restored and placed under private control again or liquidated.
Multiple efforts for comment from Prime Trust were not answered.
According to the petition, Prime’s total customer obligation amounts to about $82.8 million in cash and $861,000 in cryptocurrency liabilities.
Prime Trust was authorized to retain and manage clients’ assets as a retail trust business. In January 2017, the business launched in Nevada, and in 2018, it added a digital wallet for bitcoin trusts. According to the petition, the business thereafter signed a contract with Fireblocks LLC, a digital asset security platform, to hold the cryptocurrency assets under its custody, and completed its migration to that platform in 2020.
According to the petition, Prime gave clients access to legacy wallets in January 2021 as a result of problems with establishing new wallets on the Fireblocks platform. Officials at Prime, which is currently run by new management, thought that these old wallets were available on or in some other way connected to the Fireblocks platform. However, the business discovered in December that legacy wallets and their crypto assets were unavailable.
According to the petition, Prime made further cryptocurrency purchases between December 2021 and March 2022 using funds from its omnibus customer accounts to cover withdrawals from the inoperable legacy wallets. To yet, the business has not been able to access those wallets.
In a report submitted to the multistate licensing system on March 31, Prime declared minus $12 million in shareholders’ equity. As rumors of Prime Trust’s possible bankruptcy started to spread, consumers started taking huge cash withdrawals from the company, according to the regulators.
The cryptocurrency custodian BitGo declared it will halt its intended acquisition of Prime Trust after the cease-and-desist order was submitted last week.
As potential receivership candidates, John Guedry, a former CEO of Bank of Nevada and First Independent Bank, Paul Huygens, a director of Meadows Bank and a principal of Province, and Arvind Menon, a former president and CEO of Meadows Bank, were all agreed upon by Prime and the state regulators.
These moves might indicate how the impact of higher interest rates on the economy, according to Andrew Woods, director of UNLV’s Center for Business and Economic Research. He said that large financial organizations with diversified assets can weather tough times more readily than specialist firms.
Woods said: “I think the theme here is that we’re no longer in an era of cheap and readily available credit.”“These financial institutions that really specialize in certain areas are finding the environment is much tougher for them to live by.”
