A leading Nevada-based digital assets custodian, Prime Trust, received a cease and desist order from state regulators on Thursday, June 22. This happened after the crypto custodian failed to satisfy customer withdrawal requests on June 21.
Describing Prime Trust’s financial condition as critically deficient, Nevada’s Department of Business and Industry alleged that the company has a shortfall of customer funds. The business regulator said the firm is in an “unsafe or unsound condition” to continue the business.
Prime Trust Breached Its Custodian Duties, Says Nevada Regulator
Nevada’s business regulator said the company has “materially and willfully” contravened its fiduciary duties to customers by not safeguarding assets left under its care. The regulator gave the crypto company 30 days to respond to the cease and desist order. Also, the company can request an administrative hearing to contest the desist order.
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The cease and desist order came after Prime Trust’s rival BitGo announced it was abandoning the firm’s acquisition. Earlier in the week, before the desist order, BitGo took to Twitter and disclosed that it “made a hard decision to give up on acquiring Prime Trust after considerable efforts to find a path forward.”
BitGo had announced that it signed a non-binding letter of intent to acquire Prime Trust earlier in June. However, on June 22, the wallet provider and crypto assets custodian decided to terminate the takeover.
The initial acquisition terms would have allowed BitGo access to Prime Trust’s banking connections and asset management offerings. Meanwhile, the defendant company is yet to issue a statement or comment on this latest development.
Other Events Around Trust Company’s Desist Order
Prime Trust’s problems started after raising $107 million in capital in June 2022 at an undisclosed valuation, despite the crypto winter. And since then, the firm has faced many challenges after the crypto winter rolled in with full force.
In November 2022, the crypto custodian replaced its CEO Tom Pageler and laid off a third of its workforce in January after shutting operations in Texas. In addition, its payment subsidiary, Banq, filed for Chapter 11 bankruptcy protection in the US on June 13.
Banq listed $17.72 million in assets, $5.4 million in liabilities, and $17.5 million in unauthorized transfers to Fortress NFT Group in the bankruptcy filing. It also cited an illicit transmission of trade secrets and proprietary information to Fortress.
As expected, other crypto firms have already started damage control against the troubled digital asset custodian.
In a June 22 announcement, TrueUSD assured users that TUSD stablecoin has no exposure to Prime Trust:
Prime Trust 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 said.