Nevada’s Financial Institutions Division has taken further action against cryptocurrency custodian Prime Trust, following the filing of a cease and desist order. The regulator has petitioned the Eighth Judicial District Court of Nevada for a temporary restraining order and the appointment of a receiver to oversee Prime Trust Technologies, including its crypto custodian arm. The decision to seek a receiver was based on the significant deficit between Prime Trust’s assets and liabilities. It is believed that Prime Trust has agreed to the receivership, acknowledging the need for intervention.
The petition filed by the Financial Institutions Division emphasizes the potential harm to customers, the public, and the confidence in the emerging cryptocurrency market if immediate action is not taken. The filing claims that Prime Trust is in an unsafe financial condition and may be insolvent. It also suggests that the company’s financial situation will deteriorate further if customers continue to withdraw their funds.
The filing also reveals that Prime Trust engaged the services of Fireblocks in 2019 to store its crypto assets and underwent a change in management in 2020. In January 2021, due to limitations with Fireblocks, the custodian reintroduced legacy wallet forwarding addresses for its customers. However, since December 2021, Prime Trust has been unable to access its users’ legacy wallets and has used customer funds to purchase cryptocurrency.
According to the petition, Prime Trust owes more than $85 million to its clients in fiat currency but has only $2.9 million available as of the filing. In terms of digital assets, the custodian owes more than $69.5 million in crypto but holds approximately $68.6 million. While the liabilities in digital assets are relatively smaller, they are still significant.
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The decision to petition for a receivership comes after the Nevada regulator issued a cease and desist order on June 21, citing Prime Trust’s substantial financial deterioration and its inability to fulfill customer withdrawals due to a shortfall of customer funds. Following this order, BitGo, a wallet infrastructure provider and digital asset custodian, announced on June 22 that it would terminate its acquisition of Prime Trust.
The appointment of a receiver aims to address the financial challenges and ensure the protection of customers’ assets. It will provide an impartial party to oversee Prime Trust’s operations and work towards stabilizing its financial condition. This step is crucial to restore trust in the emerging cryptocurrency market and protect the interests of customers and the public.
The situation involving Prime Trust highlights the need for robust oversight and regulation in the cryptocurrency industry. As the market continues to evolve and gain mainstream acceptance, it becomes imperative to establish safeguards to prevent financial risks and protect consumers. The actions taken by the Financial Institutions Division demonstrate the commitment of regulators to maintain the integrity and stability of the financial system, even in the face of challenges posed by cryptocurrencies.
As the legal proceedings progress, it will be essential to monitor the outcome of the receivership and its impact on Prime Trust and its customers. The resolution of this case will serve as a critical precedent for future actions and regulatory measures in the cryptocurrency space. It will also emphasize the importance of responsible custodianship and the need for comprehensive risk management strategies in the industry.
In conclusion, Nevada’s Financial Institutions Division has petitioned the court for the appointment of a receiver to oversee Prime Trust Technologies. This action is in response to the custodian’s deteriorating financial condition and its inability to fulfill customer withdrawals. The appointment of a receiver aims to address the financial challenges and safeguard the interests of customers and the public. This case highlights the importance of regulatory oversight in the cryptocurrency industry and underscores the need for responsible custodianship and risk management practices.
