**Nevada Seeks Receiver for Prime Trust Amidst Allegations of Misused Funds**
Nevada has requested a federal court to appoint a receiver for Prime Trust, a custodian accused of using customer funds to purchase cryptocurrencies after losing access to digital wallets containing millions of dollars in assets. The state’s 30-page receivership petition, filed on Monday, seeks to impound all assets, documents, and records of Las Vegas-based Prime Trust. Additionally, the petition demands that Prime Trust and its officers be prohibited from accessing any of the company’s funds. As of now, Prime Trust has not provided any comment on the matter.
**Role of Prime Trust in Crypto Markets**
In the past, Prime Trust played a significant role in the infrastructure of cryptocurrency markets. It held funds on behalf of prominent companies like FTX, Binance.US, and Celsius Network. Custodians like Prime Trust are responsible for safeguarding dollars and digital assets on behalf of their customers, making them a relatively secure component of the financial system that is not involved in high-risk activities.
**Loss of Access to Digital Wallets and Use of Customer Money**
According to the petition, Prime Trust discovered in December 2021 that it could no longer access some of its cryptocurrency wallets. In response, the company used customer money from its omnibus customer accounts to acquire additional digital currency and fulfill withdrawals from December 2021 to March 2022. Despite efforts to regain access to the wallets, Prime Trust has been unsuccessful thus far.
**Financial Situation and Receivership Petition**
The petition reveals that Prime Trust currently owes $85.67 million in fiat currency to its clients, with only $2.9 million in fiat currency on hand. In terms of digital assets, the company owes $69.5 million to clients but possesses only $68.65 million in digital currency. Consequently, Prime Trust would be unable to meet all of its withdrawal obligations. The receivership petition calls for the appointment of a receiver to assume control of the company’s daily operations and examine its finances. The receiver will then determine whether the company should be liquidated or restructured. The motion was filed with the Eighth Judicial District Court of Nevada based on allegations that Prime Trust is operating in an unsound and unsafe manner and is insolvent, as specified in a prior cease-and-desist order issued on June 21.
**Prime Trust’s Wallet Management and Leadership Transition**
Prime Trust established a digital wallet in 2018 to hold crypto assets for its clients. Subsequently, the company used Fireblocks, a digital asset platform, to store the crypto assets held in custody, rendering the original wallet inactive. However, after completing the migration to Fireblocks, Prime Trust came under new management led by Tom Pageler. In January 2021, legacy wallets were reintroduced to customers but became inaccessible in December 2021, although the filing does not explain the reason behind this development. Jor Law, a long-time board member, was appointed as Prime Trust’s CEO in late 2022 to turn the company around.
**Previous Legal Issues and Associations**
Prime Trust faced various legal challenges in the past. Several US states, including Connecticut and Idaho, issued cease-and-desist orders against the company for operating without the necessary money-transmitter licenses. Furthermore, Celsius Network, a crypto lender that went bankrupt in 2022, filed a lawsuit against Prime Trust for failing to transfer its money. The case was later dismissed after Prime Trust agreed to return the funds. Additionally, Prime Trust was associated with FTX, the crypto exchange founded by Sam Bankman-Fried, which faced charges following its collapse in November. Records from the Federal Election Commission indicate that Bankman-Fried used Prime Trust to make political donations. The company was also mentioned in a recent case involving Abra, which illegally sold securities to investors. Abra directed Texas investors to invest through Prime Trust, despite the company lacking a money-transmitter license in the state.
**Bankruptcy and Legal Disputes**
Banq, a company that was spun out from Prime Trust in 2021, filed for bankruptcy in June. One of Banq’s investors, N9, sued Banq, Prime Trust, and one of its co-founders for fraud. Banq retaliated by suing Scott Purcell (the former CEO of Prime Trust) and several other executives, accusing them of stealing intellectual property and other assets upon their departure. Both parties deny the charges.
**Failed Acquisition and Alleged Shortfall of Customer Funds**
BitGo, a custodian that had planned to acquire Prime Trust, canceled its acquisition after allegations of a shortfall of customer funds emerged following Nevada’s cease-and-desist order, which was issued on June 22.