According to a complaint from regulatory authorities in Nevada, state-chartered trustee Prime Trust is on the verge of insolvency. The Las Vegas-based company holds reserves for the TrueUSD (TUSD) dollar stablecoin and has previously served as a custodian for FTX and Celsius.
The services of U.S. trust company Prime Trust cater to some of the world's leading crypto exchanges, digital wallets, alternative trading systems, broker-dealers, crowdfunding platforms, and neobanks, as stated on the company's website. The company once served crypto exchanges FTX and Celsius. Among Prime Trust's current clients are the U.S. branches of trading platforms Binance and OKX, as well as the issuer of the TrueUSD stablecoin (TUSD). These clients are now facing withdrawal suspensions due to a shortfall in customer funds, according to the relevant regulator.
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The end for Prime Trust?
Prime Trust has been involved in various businesses, with one of its main tasks being the custody of U.S. dollars on behalf of various crypto companies. Customer funds were then held in its own bank accounts. However, complications arose last week during fund withdrawals. The warning lights turned red at Nevada's Financial Institutions Division (FID), the regulator overseeing all state-chartered trust companies, which ordered Prime Trust to cease its activities violating local regulations.
"On or about June 21, 2023, Defendant failed to pay withdrawals to customers as customer funds were missing from Defendant's balance sheet due to a substantial liability. Additionally, Defendant failed to safeguard assets held by Defendant and is unable to satisfy all customer withdrawals." - Complaint from the Financial Institutions Division
The regulator accuses Prime Trust, among other things, of operating with a significant deficit despite potential insolvency. The financial condition of the company has deteriorated significantly, reaching a critically deficient level. The regulator's cease and desist order now prohibits Prime Trust from accepting fiat and cryptocurrencies for custody purposes from existing or new customers.
Emergency funding round falls through
Rumors of Prime Trust's insolvency have been circulating for several weeks. The company had been seeking emergency funding in the range of tens of millions of dollars. A preliminary acquisition agreement with competitor BitGo was signed in the first week of March. However, just days after a fraud lawsuit was filed against Prime Trust customer Abra, the deal fell apart. According to BitGo CEO Mike Belshe, it did not appear that Prime Trust could overcome its financial difficulties.
In a conversation with The Wall Street Journal, the former CEO and founder of Prime Trust stated that the company had not been properly managed since his departure in 2021. Prime Trust had raised $107 million in a Series B funding round as recently as June. The high-profile insolvency cases of former clients FTX and Celsius may have marked the beginning of the end for Prime Trust. The TrueUSD (TUSD) stablecoin, backed by Prime Trust deposits, continues to trade at $1.
