As reported by Cointelegraph, crypto custodian Prime Trust has filed for Chapter 11 bankruptcy protection in Delaware after encountering a deficit in customer funds.
In an August 15th filing, the company stated that it has between 25,000 to 50,000 creditors and estimated liabilities between $100 million to $500 million in comparison to its $50 million to $100 million worth of estimated assets.
"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," it said in an accompanying press release.
In addition, Prime Trust anticipates that these motions will include requests to continue to pay wages and provide benefits to ongoing employees as usual.
The firm's top five unsecured creditors have claims of approximately $105 million, of which the largest claim being $55 million.
Prime Core Technologies Inc., Prime Trust, LLC, Prime IRA LLC and Prime Digital LLC were listed as the entities filing for Chapter 11 protection.
Prime Trust's bankruptcy comes after the State of Nevada Department of Business & Industry issued the firm a cease and desist order on June 21st, saying its financial condition was “critically deficient” and was unable to honor customer withdrawals.
In the cease and desist order, the regulator claimed Prime Trust’s financial condition had “considerably deteriorated,” and the firm is now in an “unsafe or unsound condition” to continue business:
“On or about June 21, 2023, Respondent’s [Prime Trust] was unable to honor customer withdrawals due to a shortfall of customer funds caused by a significant liability on the Respondent’s balance sheet owed to customers.”
The order also added that Prime Trust has “materially and willfully breached its fiduciary duties to its customers by failing to safeguard assets under its custody.” The Nevada Department of Business and Industry again alleged the firm is “unable to meet all customer disbursement requests.”
On June 26th, Nevada's regulator petitioned a court to place the firm into receivership, which was approved by the court on July 18th.
Prime Trust agreed to the petition based on a “substantial deficit between its assets and liabilities.”
According to Cointelegraph, at the time of the petition, Prime Trust owed over $85 million in fiat to its customers but only possessed about $2.9 million. Its digital asset liabilities were of lesser size, with Prime Trust owing about $69.5 million in crypto while possessing around $68.6 million.
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