Nevada's Regulator Seizes Control of Prime Trust, Raises Alarm over Customer Funds

Nevada’s Regulator Seizes Control of Prime Trust, Raises Alarm over Customer Funds

Updated: 28 June 2023

Disclosure

Don’t invest unless prepared to lose all the money you invest. This is a high-risk investment, you shouldn’t expect to be protected if something goes wrong.

Join Our Telegram channel to stay up to date on breaking news coverage

Nevada’s Financial Institutions Division (FID) has made a significant move against cryptocurrency custodian Prime Trust by assuming control of the firm and seeking the appointment of a receiver, as revealed in a recent announcement.

Nevada’s Financial Institutions Division (FID) Takes Control of Crypto Custodian Prime Trust

The FID’s actions come in response to Prime Trust’s worsening financial condition and concerns about the safety of customer funds.

The regulator filed a petition with the Eighth Judicial District Court of Nevada, requesting a temporary restraining order and the appointment of a receiver to oversee Prime Trust Technologies, including its crypto custodian arm.

The FID emphasized the urgency of the situation, citing the risk of “irreparable harm” to customers, the general public, and confidence in the cryptocurrency market. According to the filing, Prime Trust is in an unsafe financial condition and may be insolvent.

The company’s financial situation is expected to deteriorate further as customers continue to withdraw their funds.

The FID’s filing also sheds light on Prime Trust’s previous arrangements with Fireblocks, which were established in 2019 for the storage of crypto assets. In 2020, the custodian underwent a management change, which led to the reintroduction of legacy wallet forwarding addresses for customers in January 2021.

The decision was made due to certain limitations associated with Fireblocks. However, Prime Trust has been unable to access its users’ legacy defi wallets since December 2021. In an attempt to continue operations, the company resorted to purchasing cryptocurrencies using customer funds.

Prime Trust’s financial situation was unveiled in the petition, revealing that the company is indebted to its clients in fiat currency by a staggering sum of over $85 million. However, at the time of the filing, Prime Trust only possessed a meagre amount of approximately $2.9 million.

The custodian’s liability in digital assets is also noteworthy, as it owes more than $69.5 million in cryptocurrencies while holding around $68.6 million worth of such assets.

The FID’s actions came shortly after it issued a cease and desist order to Prime Trust on June 21, citing the firm’s deteriorating financial condition and its inability to fulfil customer withdrawals due to a shortfall of funds.

Furthermore, BitGo, a wallet infrastructure provider and digital asset custodian, announced on June 22 that it had decided to cancel its acquisition plans for Prime Trust. In response to Prime Trust’s dire financial situation and potential insolvency, the FID has taken control of the custodian and halted its operations.

The regulator is now seeking a receiver to manage the company’s affairs, conduct a thorough examination of its finances, and determine the most appropriate course of action to safeguard clients. Options may include rehabilitation or liquidation.

These developments come amidst a series of setbacks for various crypto companies over the past year, coinciding with the collapse of Terra and its associated Luna crypto asset.

However, recent announcements from traditional financial institutions, such as BlackRock’s ETF filing and the launch of a new crypto exchange supported by Charles Schwab and Fidelity, have contributed to the recent recovery of crypto assets.

TrueUSD Safeguards Funds Amid Prime Trust’s Regulatory Challenges

On June 22, a sudden disruption occurred as Prime Trust implemented a temporary suspension on all deposits and withdrawals, resulting in a worrisome situation for numerous clients who found their funds stranded.

However, in the midst of this turmoil, TrueUSD, a stablecoin platform, remained unaffected and emerged unscathed.

PrimeTrust has suspended all deposits of fiat and digital assets. #TrueUSD (#TUSD) is not affected by this situation. We have no exposure to Prime Trust and maintain multiple USD rails for minting and redemption. Rest assured, all your funds are safe with TUSD.

— TrueUSD (@tusdio) June 22, 2023

Addressing the situation, TrueUSD took to Twitter to announce that its stablecoin, TUSD, remained unaffected by the turmoil at Prime Trust.

TrueUSD reassured users that it had diversified its partnerships, maintaining multiple USD rails for minting and redemption. With no exposure to Prime Trust, the platform emphasized the safety of all funds secured by TUSD.

Prime Trust offers services such as token and fiat custody, funds processing, and compliance with regulatory standards. Its sudden suspension of operations has sent shockwaves throughout the industry.

This recent development follows an earlier incident on June 10 when TUSD experienced a temporary halt in minting activities facilitated by Prime Trust, causing a deviation from its dollar peg.

Although TUSD’s value temporarily dropped, it quickly rebounded and is currently trading at $1 with an estimated market cap of $3.1 billion.

As uncertainty looms over Prime Trust, TrueUSD’s steadfast commitment to securing funds and maintaining stability has proven vital, ensuring the safety of its users’ assets.