Nevada Files to Place Crypto Custodian Prime Trust Into Receivership
Petition follows cease-and-desist order halting deposits and withdrawals Prime Trust started catering to crypto clients as a bridge to the banking system. Photo Illustration: Illustration by Alexandra Citrin-Safadi/The Wall Street Journal By Vicky Ge Huang and Caitlin Ostroff June 27, 2023 3:46 pm ET A Nevada regulator filed a petition to place crypto custodian Prime Trust into receivership, pointing to a shortfall of roughly $83 million in customer funds. The petition, filed Monday, came days after the Nevada Department of Business and Industry ordered Prime Trust to cease and desist all activities that violate the state’s regulations. The department’s financial-institutions division said the company was in an unsafe condition to transact bu
Prime Trust started catering to crypto clients as a bridge to the banking system.
Photo Illustration: Illustration by Alexandra Citrin-Safadi/The Wall Street Journal
A Nevada regulator filed a petition to place crypto custodian Prime Trust into receivership, pointing to a shortfall of roughly $83 million in customer funds.
The petition, filed Monday, came days after the Nevada Department of Business and Industry ordered Prime Trust to cease and desist all activities that violate the state’s regulations. The department’s financial-institutions division said the company was in an unsafe condition to transact business and might be insolvent.
Prime Trust stopped all cash and crypto deposits and withdrawals after the cease-and-desist order. Customers have begun to withdraw large amounts of money from Prime Trust recently, the regulator said.
Prime Trust didn’t immediately respond to a request for comment.
The trust company started catering to crypto clients in 2018, acting as a bridge with the banking system, which had largely shunned the nascent and volatile digital-asset industry. In addition to holding firms’ crypto assets, Prime Trust also helped clients stash dollars with its network of banking partners. When crypto exchange Binance.US struggled to find a bank for customer funds, Prime Trust acted as a stopgap.
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While crypto pitches itself as an alternative to the traditional financial system, the industry relies on access to dollars and other hard currencies. Companies need to pay employees and handle other expenses with government-issued currencies. Traders also deposit government currencies to buy crypto and often prefer to trade against stablecoins that are backed by dollars and short-duration Treasury bills.
Prime Trust owed customers about $85.7 million but only has $2.9 million in fiat currency, according to the petition. It owed $69.5 million of digital currency to clients and has just $68.6 million, the regulator said, adding that the company would be unable to satisfy all of its withdrawals.
The trust company’s condition “will only progressively worsen as customers continue to withdraw,” the regulator said in its petition.
Part of the shortfall stems from Prime Trust losing access to some crypto wallets that held customers’ digital assets in December 2021, according to the petition. To satisfy customer withdrawals from these inaccessible wallets, Prime Trust purchased additional digital currency using customer money from its omnibus customer accounts, the regulator said. Prime Trust hasn’t been able to regain access to the wallet as of the petition date, according to the filing.
Last week, rival custodian BitGo walked away from its deal to acquire Prime Trust, pointing to its financial difficulties.
Write to Vicky Ge Huang at [email protected] and Caitlin Ostroff at [email protected]
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