Nevada's regulator claims Prime Trust is "unsafe or unsound" to continue operations.
The Department of Business and Industry in Nevada has detailed the significant financial instability of the well-known cryptocurrency custodian Prime Trust. The firm reportedly failed to meet customer withdrawal requests for a few days.
In the warning issued on June 21st, the regulator in Nevada revealed that the crypto custodian's financial standing had fallen into a critically deficient state.
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Therefore, upon noticing a worrying situation in Prime Trust's operations, Nevada's business regulator has issued a cease and desist order.
On top of that, the regulator highlighted that Prime Trust is currently in a position where it is "unsafe or unsound" to continue operations.
Prime Trust encountered an inability to honor withdrawals from its customers around June 21st, 2023. This inability resulted from a shortfall in the customer funds, which was brought about by a considerable liability on Prime Trust's balance sheet, owed to its customers.
According to the order, Prime Trust has "materially and willfully breached its fiduciary duties to its customers by failing to safeguard assets under its custody.” The regulator has reiterated that the company has been unable to meet all customer distribution requests.
Following the cease and desist order, Prime Trust now has 30 days to respond. The firm can also demand an administrative hearing if it aims to challenge the order. In case the order remains uncontested, it will achieve finality.
It appears that Prime Trust's situation is only worsening, as a digital asset custodian and wallet infrastructure provider, BitGo, declared on June 22nd that its planned acquisition of Prime Trust was no longer proceeding.
The unfolding financial instability at Prime Trust has raised considerable concerns for the broader crypto industry, given its role in the ecosystem. Its inability to meet customer withdrawal requests highlights the importance of rigorous financial health checks for all companies operating in this dynamic and rapidly evolving space.
