Nevada regulator says Prime Trust can't meet all client withdrawals

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  • The Nevada Financial Institutions Division said Thursday that crypto custodian Prime Trust could not meet all customer withdrawals.

The Nevada Financial Institutions Division said Thursday that crypto custodian Prime Trust could not meet all customer withdrawals.

The regulator said it had been monitoring the company's solvency ahead of the planned acquisition by BitGo that was called off on Thursday. 

"Prime failed to safeguard assets under its custody and cannot meet all client withdrawals," the regulator said in an emailed response to questions. "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," the regulator added. It said it sent a cease-and-desist order to the company on June 21, ordering it to stop accepting fiat and cryptocurrency from existing and new clients for custody purposes. 

BitGo earlier this month had signed a non-binding term sheet to acquire 100% of the equity of Prime Core Technologies, the parent company of Prime Trust. It said Thursday that the decision to end the deal came "after considerable effort and work to find a path forward."

Prime Trust enforcement action

In the Nevada enforcement action, the regulator said it started a "safety and soundness examination" of the firm on Nov. 7. The firm reported a negative $12.1 million stockholders' equity position in a March report.

"The overall financial condition of Respondent has considerably deteriorated to a critically deficient level, and Respondent is now in position where it is in an unsafe or unsound condition to transact business and/or if it were to continue to operate it would be in an inviable and/or unsafe manner," the regulator said.

On around June 21, the firm was not able to honor customer withdrawals due to a shortfall of customer funds, which was caused by a "significant liability" on its balance sheet, the regulator added.

"Additionally, Respondent failed to safeguard assets under its custody and is unable to meet all customer withdrawals," it added. "As such, Respondent has materially and willfully breached its fiduciary duties to its clients."

Other companies forced to suspend some services

Fiat onramp service Stably, which relies on Prime Trust as its regulated custodian, said earlier in the day that it was forced to pause some services and operations as a result of Prime Trust freezing withdrawals and deposits. 

Securitize Markets also said it is temporarily pausing its Cash Balance feature and secondary trading on the Securitize Markets ATS.

"In the event that you are unable to withdraw any funds from your Prime Trust account, our parent company, Securitize, Inc., will make you whole," it wrote in an email sent to customers that was seen by The Block. "Given today’s events, we have expedited our already planned migration away from Prime Trust to a new cash custodian, and we anticipate that migration to be complete in approximately one month."

Coinmetro said in a post on Twitter that it was currently unable to process new USD transactions as a result. TrueUSD, meanwhile, said the TUSD stablecoin was not affected.


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About Authors

Sarah is a reporter at The Block covering policy, regulation and legal happenings. Before, Sarah was a reporter with CQ Legal writing about securities regulation, which is where she first started reporting on crypto. Sarah has also written for The Bond Buyer and American Banker, among other finance-related publications. She graduated from the University of Missouri and earned a degree in print and digital journalism. Sarah is based in Washington D.C., and is an avid coffee lover. You can follow her on Twitter @ForTheWynn.
Nathan Crooks is the U.S managing editor at The Block, based in Miami. He was previously at Bloomberg News for 12 years, where he helmed coverage of South Florida after roles as a breaking news editor and bureau chief in Caracas, Venezuela. He's interviewed presidents, government ministers and CEOs, and, besides crypto, has covered major news events on the ground from earthquakes to hurricanes to the Chilean mine rescue in 2018. Nathan, a native of Clarion, Pennsylvania, holds a bachelor's degree from the University of Toronto, where he completed a specialist in political science, and an MBA from American University in Washington, D.C.

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