This company’s customers couldn’t access $83M of funds. What happens next?
A Las Vegas-based retail trust company specializing in cryptocurrency is expected to be put in receivership after Nevada regulators determined it had a shortfall of nearly $83 million in customer funds.
On Monday, the Nevada Department of Business and Industry’s financial institutions division petitioned the Eighth Judicial District Court to put Prime Trust — a business-to-business-to-consumer company that dealt cryptocurrency and developed financial technology software for clients — into receivership to avoid worsening the possible insolvency.
“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 said in its petition.
The move comes less than a week after the financial institutions division issued a cease-and-desist order to the company on June 21. At that time, the state alleged that the company had a shortfall of customer funds and wasn’t able to honor customer withdrawal requests.
Prime Trust, a Nevada LLC wholly owned by Prime Core Technologies, requested the receivership to take over the day-to-day operations of the company, according to the petition. The receivership will determine whether the company should be rehabilitated and returned to private management or liquidated, according to a Tuesday news release from the state.
Prime Trust did not respond to multiple requests for comment.
Prime’s total client liability is roughly $82.8 million in currency and $861,000 worth of cryptocurrency liabilities, according to the petition.
As a retail trust company, Prime Trust was licensed to hold and manage assets for customers. The company began operating in Nevada in January 2017 and added a digital wallet for cryptocurrency trusts in 2018. The company later contracted with digital asset security platform Fireblocks LLC to store the crypto assets in its custody and finished its migration to that platform in 2020, according to the petition.
In January 2021, Prime introduced legacy wallets to customers because of issues with creating new wallets on the Fireblocks platform, according to the petition. Officials at Prime — now under new management — believed that these legacy wallets were on or otherwise accessible through the Fireblocks platform. But by December, the company learned that legacy wallets and their crypto assets were inaccessible.
Between December 2021 and March 2022, Prime purchased additional digital cryptocurrency using money from its omnibus customer accounts to satisfy withdrawals from the inaccessible legacy wallets, according to the petition. The company hasn’t been able to access those wallets to date.
Prime reported a negative $12 million in stockholders’ equity in a March 31 report to the multistate licensing system. Recently, customers have begun to withdraw large sums of money from Prime Trust as news of its potential insolvency began to circulate, the regulators said.
After the cease-and-desist order was filed last week, the cryptocurrency custodian BitGo announced it would terminate its planned acquisition of Prime Trust.
Prime and state regulators agreed to a list of possible candidates for the receivership that consisted of John Guedry, former CEO of Bank of Nevada and First Independent Bank; Paul Huygens, director of Meadows Bank and prinicpal of Province; and Arvind Menon, the former president and CEO of Meadows Bank.
Andrew Woods, director of UNLV’s Center for Business and Economic Research, said these actions may signal how rising interest rates are affecting the economy. Large financial institutions with diverse portfolios can weather hardship more easily, he said, while specialized institutions may not.
“I think the theme here is that we’re no longer in an era of cheap and readily available credit,” Woods said. “These financial institutions that really specialize in certain areas are finding the environment is much tougher for them to live by.”
McKenna Ross is a corps member with Report for America, a national service program that places journalists into local newsrooms. Contact her at mross@reviewjournal.com. Follow @mckenna_ross_ on Twitter.
