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Cryptocurrency custodian Prime Trust and some affiliates filed for Chapter 11 bankruptcy on Monday.
Las Vegas-based cryptocurrency custodian Prime Trust filed for Chapter 11 bankruptcy earlier this week after Nevada regulators placed it into receivership in June.
Prime Trust Records Significant Deficit on Its Books
Nevada’s Financial Institutions Division (NFID) placed crypto custodian Prime Trust into receivership, took control of the business, and froze its operations and businesses. Regulators decided to step in after it determined the company was insolvent and could not serve its customers.
Prime Trust said in a filing that it has between 25,000 to 50,000 creditors and estimates its liabilities to be between $100 million and $500 million. The firm added its assets are worth $50 million to $100 million.
The Chapter 11 filing indicates John Guedry, the former president of the Bank of Nevada, will act as a receiver and lead the restructuring committee. Judge Susan Johnson of the Eighth Judicial Court of the State of Nevada will oversee the bankruptcy proceedings. Prime Trust will continue in their role as “debtors-in-possession” under the court’s jurisdiction.
In a press release announcing its bankruptcy, Prime Trust said:
“The Company, under the supervision and direction of the Special Committee, continues to manage their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.”
“The Company intends to file a number of motions with the Bankruptcy Court designed to facilitate the Company’s orderly evaluation of all strategic alternatives, including potentially a sale of the Company’s assets and operations as a going concern.”
Regulators claim Prime Trust misused customer funds to pay withdrawals since December 2021 after the firm lost access to several customer crypto wallets.
Prime’s voluntary bankruptcy filing comes as no surprise. In a press statement, the NFID commented on its decision to place the firm under receivership:
“The Nevada Financial Institutions Division (“NFID”) was actively monitoring the solvency of Prime Trust, LLC (“Prime”) in anticipation of a potential acquisition or merger. Ultimately, Prime failed to safeguard assets under its custody and cannot meet all client withdrawals. 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.”
Several of the company’s affiliates, including Prime Core Technologies Inc., Prime Trust, LLC, Prime IRA LLC and Prime Digital LLC, also filed for bankruptcy relief.
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