A major blow has been dealt to the cryptocurrency custody industry. A crypto custodian Prime Trust has been ordered to appoint a buyer by the Nevada Eighth Judicial District Court. The court’s decision came after the state regulator mandated the company to cease all operations amid serious shortfalls in client funds and allegations of misappropriation of client assets to settle withdrawal requests. Here are the details…
Crypto company operations are handed over
The decision to transfer the Prime Trust to the trustee was made public in an application to the Financial Institutions Division of the Nevada Department of Business and Industry. The filing said the company’s financial condition had “deteriorated significantly, reaching a critically inadequate level.” It also stated that it made it “unsafe or unstable” to continue its business operations. As stated in the official application, John Guedry, esteemed Chairman of the Bank of Nevada, will be responsible for Prime Trust’s operations during the exchange.
The Nevada regulator had signaled its intention to intervene in June when it tried to take control of the Prime Trust and freeze all its business operations. As we reported as Kriptokoin.com, at that time the regulatory agency accused Prime Trust of being on the verge of bankruptcy. Notably, this move came shortly after another major crypto custodian, BitGo, canceled its plans to acquire Prime Trust.
What do the numbers show?
The court-ordered filing revealed a grim financial picture for the crypto custody service. Prime Trust has been shown to owe clients over $85 million in fiat currency. However, officials found that it only holds about $3 million in fiat reserves. The company owed customers another $69.5 million in various cryptocurrencies. However, he only has $68.6 million worth of cryptocurrencies. In addition, the documents contained troubling accusations against the Prime Trust. The company allegedly hacked into customers’ accounts to fulfill requests for withdrawals from their “old wallets”. This action has raised serious concerns about misuse and mismanagement of client funds.
News of Prime Trust’s problems shocked the cryptocurrency community. It has sparked controversy about the need for stronger regulation and oversight in the emerging crypto custody industry. This case highlights the importance of a thorough review of custody services, particularly given the potential risks posed by inadequate financial guarantees and the need for third-party audits. As the case unfolds, industry experts are keeping a close eye on developments in the hope that it will serve as a wake-up call for the entire crypto custody industry to adopt robust financial controls and ensure the safety of client assets.
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