March 27, 2024
Crypto Custodian Prime Trust Files for Bankruptcy Citing Mismanagement and Market Collapse
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Crypto Custodian Prime Trust Files for Bankruptcy Citing Mismanagement and Market Collapse

Negligent spending, missing the crypto market collapse in the summer of 2022. gaining access to its own cryptocurrency wallet gets blocked. These are some of the mistakes listed in a court document that struggling cryptocurrency custodian Prime Trust filed in an effort to obtain bankruptcy protection.

Prime Trust CEO Jor Law detailed how the firm was damaged by a combination of the plummeting cryptocurrency market and a management team that refused to change course throughout the plunge in a petition with the U.S. Bankruptcy Court in Delaware on Thursday. Instead, Law, who took over as interim CEO in November of last year, claimed that the organization’s prior executives increased expenditures at a time when revenues were under pressure.

Law claims that Prime Trust experienced a net loss of more than $7 million in October after spending around $10.5 million compared to earning roughly $3.1 million. After a month, the expenditures increased once more to $11.1 million, resulting in an additional net loss of around $8.4 million.

The failure of Terra’s UST stablecoin and LUNA governance token in May of last year was one of the incidents that immediately affected the business. Prior to Terra’s failure, Prime Trust allegedly invested $6 million in customer assets and $2 million from its own treasury.

The business explained how it locked itself out of its own cryptocurrency wallet in another terrible occurrence.

Low described how corporate officials used a “cold storage wallet” to keep track of tokens, including ETH and ERC-20 compatible coins, under the headline “The Wallet Event.” In March 2018, one wallet, referred to as a “98f Wallet,” was established as a device that required both physical possession and several signatures to access.

Prime Trust switched its wallets to a system run by the Fireblocks digital security platform in 2019. However, the business was unaware that the transition from the old system to the legacy wallets was not complete and that it was still giving clients addresses that let them deposit money into the 98F wallet.

It didn’t become aware of these errors until an anonymous customer asked for a sizable ETH withdrawal that the business was unable to process. Even worse, it soon discovered that it was no longer in possession of the actual tools—engraved Cryptosteel plates—needed even to access the previous wallet.

Prime Trust still doesn’t have access to the 98F wallet, according to Law.

Instead, Law said that between December 2021 and March 2022, “certain company employees” started utilizing fiat money from its client accounts to pay for ETH purchases and fulfill withdrawal requests, spending more than $76 million in the process.

From there, Prime Trust’s issues progressively got worse. State securities inspectors targeted two Prime Trust partners in June, while the business itself saw a merger agreement with cryptocurrency custodian BitGo fall through just two weeks after it was signed.

Nevada regulators proceeded to shut down Prime Trust on June 27 after discovering the company owed customers a sizable amount of money in fiat and cryptocurrencies. According to officials, Prime Trust had just approximately $2.9 million in cash on hand and owed more than $85 million in currency. Prime Trust owes over $69.5 million in cryptocurrency and has a little bit more than $68.6 million accessible at the moment.

Prime Trust was initially thrown into receivership before declaring bankruptcy on August 14.

Image: Freepik

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