Nevada Files to Place Crypto Custodian Prime Trust Into Receivership

Nevada's Financial Institutions Division filed to take over crypto custodian Prime Trust and freeze all of its businesses, the regulator announced on Tuesday.

The move comes mere days after fellow custodian BitGo called off its bid to acquire Prime Trust, and follows a Nevada cease-and-desist order which alleged Prime Trust was near insolvency. Tuesday's request for receivership states that Prime Trust owes its clients north of $85 million in fiat, and has about $3 million in fiat currency on hand. The company owes a further $69.5 million in crypto, and has $68.6 million in crypto on hand, the filing said.

The filing said Prime Trust was also operating with a $12 million equity deficit.

Part of this shortfall comes from Prime Trust being unable to access "legacy wallets," the filing said.

Prime Trust entered an agreement with Fireblocks to have the latter company manage its crypto assets, which was completed in 2020. In 2021, after Prime Trust saw new management, it set up "legacy wallet forwarding," for wallets that were either on Fireblocks' platform or set up to forward to wallets on Fireblocks' platform, the filing said. However, in December 2021, Prime Trust "discovered that it was unable to access" its legacy wallets or cryptocurrencies held in those wallets.

"It is understood that from December 2021 to March 2022, to satisfy the withdrawals from the inaccessible Legacy Wallets, [Prime] purchased additional digital currency using customer money from its omnibus customer accounts," the filing said. "[Prime] is reported to have been making efforts to regain access to the Legacy Wallets. However, as of the date of this Petition, [Prime] has been unable to do so."

Fireblocks communications head Gaby Hui told CoinDesk in a statement that the legacy wallets were all controlled by Prime Trust, and no funds held by Fireblocks are in limbo.

"After Prime Trust became a Fireblocks customer, new management made a decision to deposit Prime Trust’s customer assets in old legacy wallets. Once management moved those assets to the legacy wallets, the customer assets were not recoverable. These legacy wallets were not Fireblocks wallets," the statement said.

Prime Trust's management – and any receiver who takes over – will have full control of any wallets maintained by Fireblocks.

A Prime Trust official declined to comment.

The company's condition "will only progressively worsen as customers continue to withdraw," according to the state's filing.

Both Prime Trust and FID requested the receivership, the filing, attributed to Nevada Commissioner Sandy O'Laughlin, indicated. The filing also asks for preliminary injunctive relief, saying it would be in the public's interest and that there is a "threat of immediate, irreparable harm."

"The petition asks the court to appoint a receiver to take over the day-to-day operations of the company and thoroughly examine all its finances to determine the best option to protect Prime’s clients, either by rehabilitating and returning the company to private management or by liquidating the company," a press release sent by a Nevada FID spokesperson said.

In the meantime, the filing asks for a court to ban Prime Trust, as well as its officers, directors, stakeholders and others, from disposing of any of Prime Trust's assets or conducting any transactions.

According to an affidavit signed by O'Laughlin, Prime Trust and FID both agree that former Bank of Nevada CEO John Guedry, Meadows Bank Director Paul Huygens or former Meadows Bank CEO Arvind Menon are qualified as possible receivers.

Exhibits attached to the filing show that Prime Trust's board and interim CEO all signed off on the petition.

UPDATE (June 27, 2023, 17:40 UTC): Adds additional detail.

UPDATE (June 27, 17:50 UTC): Adds additional information, including the possible receiver names and Prime Trust's board's signoff.

UPDATE (June 27, 21:45 UTC): Adds comment from Fireblocks.