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On Thursday, the Nevada Department of Business and Industry revealed that Crypto custody firm Prime Trust experienced "a shortfall in customer funds" and could not fulfill all withdrawal requests this month.
The Financial Institutions Division (FID) of the Department, responsible for supervising trust companies regulated by the state, has directed Prime Trust to halt any activities that breach Nevada regulations. The FID claims that the company's "overall financial condition ... has considerably deteriorated to a critically deficient level."
The order stated that Prime Trust is either "operating at a substantial deficit" or potentially facing insolvency.
"On or about June 21, 2023, Respondent was unable to honor customer withdrawals due to a shortfall of customer funds caused by a significant liability on the Respondent's balance sheet owed to customers," the order said. "Additionally, Respondent failed to safeguard assets under its custody and is unable to meet all customer withdrawals."
The regulator asserted that Prime Trust's ability to operate effectively would be compromised if it were allowed to continue, citing a breach of its fiduciary duties.
As per the order, Prime Trust disclosed a stockholders' equity position exceeding negative $12 million by the end of March 2023.
Prime Trust has the option to request a hearing within a 30-day period following the order. Failure to do so will result in the cease-and-desist order being considered as final.
The Nevada regulator's website promptly published the order shortly after BitGo, a fellow cryptocurrency company, announced the cancellation of its intended acquisition of Prime Trust.
Immediately after the cancellation of the deal, a multitude of companies made public announcements stating that Prime Trust had swiftly ceased accepting any fiat deposits in direct response to the regulatory order from Nevada. However, they refrained from disclosing the precise contents or specifics of the order.
Jor Law, the interim CEO of Prime Trust, did not promptly respond to a comment request.
Following the release of this article, a spokesperson from the Nevada FID issued a statement stating that on June 21, they had issued a cease-and-desist order to Prime Trust, prohibiting them "from accepting fiat and cryptocurrency from existing and new clients for custody purposes."
"The Nevada Financial Institutions Division ('NFID') was actively monitoring the solvency of Prime Trust, LLC ('Prime') in anticipation of a potential acquisition or merger," the spokesperson said. "Ultimately, Prime failed to safeguard assets under its custody and cannot meet all client withdrawals. As such, Prime has breached its fiduciary duties to its clients, in violation of Nevada trust laws. NFID’s primary objective is to preserve any enterprise value remaining in Prime for the benefit of Prime’s clients."
