The Las Vegas-based cryptocurrency custodian, Prime Trust
has filed for Chapter 11 bankruptcy protection. This marks the latest setback
for the financial technology company, which has faced a series of challenges
over the past year, from regulatory intervention to failed acquisition attempts.
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The collapse of Prime
Trust gained momentum when it was placed under receivership by the regulators
in Nevada in June. This action was taken due to the company’s insolvency and
inability to serve its customers. Additionally, a prospective acquisition by
rival crypto custodian, Bitgo fizzled out without explanation, causing concerns
about the stability of the firm.
In June, Prime Trust’s subsidiary, Banq, filed for bankruptcy due to
alleged mismanagement under the former CEO, Scott Purcell. Besides that, partner company
Abra faced a cease and desist order in Texas over securities fraud allegations.
The situation worsened
when the Nevada Financial Institutions Division (NFID) stepped in to shut down
Prime Trust’s operations, citing breaches of fiduciary duties and trust laws.
The regulators reportedly discovered that Prime Trust had improperly utilized
customers’ funds to cover withdrawals since December 2021.
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“The NFID was
actively monitoring the solvency of Prime Trust in anticipation of a potential
acquisition or merger,” the regulator stated. “Ultimately, Prime
failed to safeguard assets under its custody and cannot meet all client
withdrawals. As such, Prime had breached its fiduciary duties to its clients,
in violation of Nevada trust laws.”
The alleged misuse of
funds was exacerbated by the fact that most of the digital assets held by Prime
Trust under custody were held in illiquid assets rather than a more popular
cryptocurrency such as Bitcoin. Thus, the company faced mounting
financial obligations.
Restructuring Operations
The former President of
the Bank of Nevada, John Guedry, will lead the restructuring efforts
as a receiver, while Judge Susan Johnson will oversee the bankruptcy process.
Meanwhile, Prime Trust will continue to operate under the bankruptcy court’s
jurisdiction. However, the company plans to file a motion to continue paying
employees wages and benefits during this phase.
Furthermore, the cease
and desist order prompted other cryptocurrency companies to withdraw their
assets from Prime Trust, causing a ripple effect within the industry. According
to Tuesday’s statement, Prime Trust aims to explore strategic alternatives,
including the potential sale of its assets.
Founded in 2016, Prime
Trust initially gained recognition for its blockchain -based infrastructure and
APIs for financial institutions. However, the firm was recently forced
to cut a substantial number of employees from its workforce.
The Las Vegas-based cryptocurrency custodian, Prime Trust
has filed for Chapter 11 bankruptcy protection. This marks the latest setback
for the financial technology company, which has faced a series of challenges
over the past year, from regulatory intervention to failed acquisition attempts.
The collapse of Prime
Trust gained momentum when it was placed under receivership by the regulators
in Nevada in June. This action was taken due to the company’s insolvency and
inability to serve its customers. Additionally, a prospective acquisition by
rival crypto custodian, Bitgo fizzled out without explanation, causing concerns
about the stability of the firm.
Discover StealthEX.io – the future of cryptocurrency. Swap instantly across 1000+ coins, no sign-up, secure, and private. Dive into the new age of crypto!
In June, Prime Trust’s subsidiary, Banq, filed for bankruptcy due to
alleged mismanagement under the former CEO, Scott Purcell. Besides that, partner company
Abra faced a cease and desist order in Texas over securities fraud allegations.
The situation worsened
when the Nevada Financial Institutions Division (NFID) stepped in to shut down
Prime Trust’s operations, citing breaches of fiduciary duties and trust laws.
The regulators reportedly discovered that Prime Trust had improperly utilized
customers’ funds to cover withdrawals since December 2021.
Keep Reading
“The NFID was
actively monitoring the solvency of Prime Trust in anticipation of a potential
acquisition or merger,” the regulator stated. “Ultimately, Prime
failed to safeguard assets under its custody and cannot meet all client
withdrawals. As such, Prime had breached its fiduciary duties to its clients,
in violation of Nevada trust laws.”
The alleged misuse of
funds was exacerbated by the fact that most of the digital assets held by Prime
Trust under custody were held in illiquid assets rather than a more popular
cryptocurrency such as Bitcoin. Thus, the company faced mounting
financial obligations.
Restructuring Operations
The former President of
the Bank of Nevada, John Guedry, will lead the restructuring efforts
as a receiver, while Judge Susan Johnson will oversee the bankruptcy process.
Meanwhile, Prime Trust will continue to operate under the bankruptcy court’s
jurisdiction. However, the company plans to file a motion to continue paying
employees wages and benefits during this phase.
Furthermore, the cease
and desist order prompted other cryptocurrency companies to withdraw their
assets from Prime Trust, causing a ripple effect within the industry. According
to Tuesday’s statement, Prime Trust aims to explore strategic alternatives,
including the potential sale of its assets.
Founded in 2016, Prime
Trust initially gained recognition for its blockchain -based infrastructure and
APIs for financial institutions. However, the firm was recently forced
to cut a substantial number of employees from its workforce.
