Custodian Prime Trust accused of misappropriating funds again, regulatory authorities have applied to act as bankruptcy trustees

Earlier, the Nevada Department of Financial Institutions accused custody service provider Prime Trust of insolvency and ordered it to cease operations. On June 26th, Prime Trust filed for bankruptcy and applied to the local court to act as the bankruptcy trustee. It was pointed out that Prime Trust had used customer assets to meet the withdrawal needs of other users due to the inability to access old wallets, resulting in debts of over $80 million to users.

Nevada Financial Institutions Division Seeks Receivership of Prime Trust

According to legal documents filed by Nevada regulatory authorities, they have reiterated claims that Prime Trust is insolvent and unable to meet withdrawal demands, and have petitioned to act as the bankruptcy trustee at the Eighth Judicial District Court of Nevada.

The documents state that Prime Trust owes users over $85.67 million in fiat currency and $69.5 million in digital assets, holding only $2.9 million in cash and $68.64 million in digital assets.

The state regulatory authority is seeking to take over the operations of Prime Trust and conduct a thorough investigation of all financial conditions to protect users.

Access Issue with Old Wallets Leads Back to Fireblocks

The documents point out that part of the significant fund gap is due to Prime Trust's inability to access old wallets managed by another custodian, Fireblocks, with the timeline as follows:

• 2019: Agreement signed between both parties.

• 2020: Relevant crypto assets migrated to Fireblocks wallets.

• 2020: Prime Trust welcomed new executives, with former executives claiming assets held in Fireblocks wallets were accessible.

• December 2021: Prime Trust discovered the inability to access the wallets.

• December 2021 to March 2022: Due to the inability to access the wallets, Prime Trust misappropriated customer assets to purchase cryptocurrencies to meet withdrawal demands.

The documents state that Prime Trust still cannot access the wallets to date.

Fireblocks: They Used the Wrong Wallets

Fireblocks executive Gaby Hui told CoinDesk that there is no fund gap on Fireblocks' end, but Prime Trust used the wrong wallets:

After Prime Trust became a Fireblocks user, their new executives had the user assets stored in old wallets, making the assets irrecoverable once done, as these old wallets are no longer Fireblocks' wallets.

Prime Trust executives declined to comment on this matter.

Previously, the bankrupt lending platform Celsius also suffered losses of over 40,000 ETH due to the custody provider Fireblocks' loss of private keys for ETH collateral service provider Stakehound.

The CEO of Celsius had also attributed this as one of the main reasons for the bankruptcy during internal meetings. Please refer to the following reports:

• Celsius Plans Brand Revamp, Service Resumes in November

• CeFi Platform Celsius Hid Loss of Tens of Thousands of ETH! Will Reputation Issues Lead to a Bank Run Crisis?