The Financial Institutions Division of the state of Nevada announced on Tuesday that it has applied to the court to take over Prime Trust, a crypto custody company. The regulator seeks to have another entity in charge of operations at the crypto custody firm or have it completely liquidated.
Prime Trust is indebted to its customers to the tune of $85 million in national currency and $69 million in digital assets. Investigations into the company’s books show that it has just $3 million in fiat currency and $68 million worth of cryptocurrencies.
Operating in an unsafe manner
The regulator said,
This action resulted from the Division’s determination that Prime is operating in an unsafe and unsound manner and is insolvent as specified in the Cease-and-Desist Order issued on June 21, 2023.
In other words, the crypto custodian doesn’t have enough funds to cover investors’ deposits.
The filing by the regulator requests the court authorize a take-over of Prime Trust by a third party entity, which would be in charge of the day to-day running of Prime Trust. The regulator maintains that the company is insolvent and, as a result, incapable of fulfilling its obligations to its customers.
What really happened
The report said that the issue arose in 2019 after Prime Trust hired an asset storage platform, Fireblocks LLC, to store its crypto but had to introduce wallet forwarding to cover up some shortcomings. The company had a change of management and had to reintroduce legacy wallets in 2021. The regulator said,
It is understood Prime did so because of limitations associated with creating new wallets within the Fireblocks platform,” the regulator said. “Prime purportedly believed that these legacy wallets existed on the Fireblocks platform or were configured to forward to wallets accessible on the Fireblocks platform.”
For reasons unknown to the regulator, the company seems not to be able to access some of its wallets. However, the Prime Trust management was reportedly cooperating with the regulator in its decisions to safeguard customers’ funds.