Prime Trust, a former prominent custodian of cryptocurrencies, filed for bankruptcy protection in Delaware. This comes after the Nevada Financial Institutions Division raised concerns about the company’s operations, stating that they were being conducted in an “unsafe and unsound manner.”
A few years ago, the company was a pioneer in its industry, managing funds for other giants that have since collapsed, like FTX and Celsius Network.
Prime Trust Files For Bankruptcy Protection
Prime Trust has its headquarters in Las Vegas, Nevada, but it filed for bankruptcy protection in the district of Delaware because it had its residence, principal place of business, or major assets there for 180 days before the filing date.
According to recent events, the firm’s statement indicates that its projected liabilities (on a consolidated basis) vary between $100 million and $500 million, and the total number of creditors might reach 50,000.
When the Nevada watchdogs issued a cease and desist order to the crypto custodian in June, they said the company had significant liquidity gaps and could not honor clients’ withdrawal requests. This raised regulatory concerns with the Nevada watchdogs. Due to this, a receivership petition for Prime Trust was soon after submitted by the Nevada Financial Institutions Division.
The regulator calculated that the cryptocurrency company only had $2.9 million and that it owed clients more than $85 million in fiat cash. Additionally, it owed money in cryptocurrencies totaling $69.5 million while having $68.6 million worth of digital assets.
Earlier in the year, when competing cryptocurrency custodian BitGo signed a letter of intent to buy Prime Trust in June but withdrew two weeks later, the development made headlines. However, BitGo did not state why it terminated the agreement.
The decision by the Nevada Financial Institutions Division (NFID) to shut down Prime Trust’s operations dealt the company its final blow. The NFID stated that it was “actively monitoring Prime Trust’s solvency in anticipation of a potential acquisition or merger” but that the company had “breached its fiduciary obligations to its clients, in violation of Nevada trust laws.”
Prime Trust was once a market leader, storing assets and offering services to the now-defunct FTX cryptocurrency exchange and the cryptocurrency lender Celsius Network. Both businesses declared insolvency last year, adding their names to the long list of businesses that failed due to the protracted bear market or some alleged fraudulent activities.
Takeaways
Prime Trust’s recent Chapter 11 bankruptcy protection filing marks a significant turn of events for a once-prominent cryptocurrency custodian. Prime Trust’s financial collapse due to regulatory concerns, liquidity gaps, and alleged management problems emphasizes the importance of good governance and risk management in the cryptocurrency industry. Such occurrences serve as a reminder of the need for vigilance and responsible management to ensure the longevity and stability of cryptocurrency enterprises as the industry continues to mature.
