Cryptocurrency Custodian Prime Trust Takes Shelter Under Chapter 11 Protection
Prime Trust, a cryptocurrency custodian headquartered in Las Vegas, has initiated the process of seeking Chapter 11 bankruptcy protection. This decision arrived as the company was unable to process customer withdrawals for a prolonged period.
The corporate entity Prime Trust LLC and several of its affiliated entities have formally submitted their Chapter 11 bankruptcy petition to the U.S. Bankruptcy Court for the District of Delaware. In a filing dated August 15, the firm revealed having between 25,000 to 50,000 creditors and projected liabilities ranging from $100 million to $500 million, while its estimated assets fall within the range of $50 million to $100 million.
In a press release, the company stated its intentions to present various motions before the Bankruptcy Court to facilitate a structured assessment of strategic options. These options encompass the potential sale of the company's assets and ongoing operations. Prime Trust also emphasized its commitment to its workforce, suggesting it would continue to pay salaries and benefits for its employees.
Despite this, the company persists in operating as "debtors-in-possession", closely monitored by a special committee dedicated to overseeing its operations.
Prime Trust was established in 2016 with the intention of providing APIs to the financial sector, including banks, fintech firms, cryptocurrency exchanges, and payment networks through the use of the blockchain. Read our dedicated article.
Efforts by Prime Trust's leadership to vend the company encountered roadblocks, notably in June when crypto custodian BitGo initially announced its intention to acquire Prime Trust but later reversed its decision.
The initiation of Prime Trust's bankruptcy proceedings follows a cease and desist order issued by Nevada's business regulator on June 21, citing severe inadequacies in the firm's financial health that prevented it from fulfilling customer withdrawal requests.
Subsequently, on June 26, Nevada's regulator petitioned the court to appoint a receiver for Prime Trust, a move sanctioned by the court on July 18.
Prime Trust owed over $82 million to consumers for missing fiat currency deposits, despite having $68 million in digital assets under custody, according to a regulatory filing. However, an analysis revealed that the majority of these funds were retained in an illiquid token as opposed to Bitcoin. Trust allegedly used customer funds inappropriately to pay withdrawals after losing access to some customer cryptocurrency wallets.
