By
Tolu Ajiboye
April 8th, 2024
Prime Trust announced its intention to present a series of motions to the court.
Prime Trust, a crypto custodian company based in the United States, has officially filed for Chapter 11 bankruptcy protection due to its financial challenges. The filing was made in Delaware on August 15, with the company citing a significant shortfall in customer funds as the primary reason behind its drastic decision.
The latest filing comes a few weeks after the company’s subsidiary Banq filed for separate bankruptcy protection at the United States Bankruptcy Court in Nevada in June. Its parent company Prime Trust has followed in its footsteps, seeking Chapter 11 protection.
The bankruptcy filing revealed the company’s complex financial situation, estimating its liabilities to fall within $100 million to $500 million. The figure far outweighed its estimated assets worth between $50 million and $100 million. The company’s dire circumstances have compelled it to take action to address these financial discrepancies.
$105M to Be Paid to Unsecured Creditors
In a press release accompanying the filing, Prime Trust announced its intention to present a series of motions to the court. These motions aim to facilitate a comprehensive evaluation of strategic alternatives available to the company. Among these options is the potential sale of its assets and operations, which could help stabilize its financial standing.
Part of the motion also includes plans to continue paying employees wages without restricting their full benefits.
“It is anticipated that these motions will include requests to continue to pay wages and provide benefits to ongoing employees as usual,” Prime Trust said.
According to the court document, Prime Trust has between 25,000 and 50,000 creditors. This massive number of creditors highlights the wide-ranging impact of the company’s financial instability, affecting a substantial network of stakeholders.
In terms of creditors, the company’s top five unsecured creditors have asserted claims totaling around $105 million, with the largest single claim amounting to $55 million. The entities filing for Chapter 11 relief include Prime Core Technologies Inc., Prime Trust, LLC, Prime IRA LLC, and Prime Digital LLC.
Genesis of Prime Trust’s Financial Woes
Prime Trust’s financial woes started with crypto lender Celsius during the 2022 crypto winter, prompting the firm to shut down operations and subsequently initiate bankruptcy protection in a US court. According to reports, Prime Trust held up to $119 million of Celsius assets which it returned to the company after its business contract ended in 2021.
However, Celsius claimed that the company still held $17 million in crypto, which Prime Trust has refused to pay back. In August 2022, the bankrupt lender brought legal action against the Prime Trust to claw back the funds. The company agreed to return the crypto assets two months after the suit.
Aside from Celsius, Prime Trust faced other challenges. Most notably, Nevada’s Department of Business and Industry regulators issued a cease and desist order against the company on June 21, citing its inability to honor the customer’s withdrawal request.
According to the regulators, the company’s financial condition has significantly deteriorated, causing Prime Trust to default on withdrawal requests.
Shortly after the cease and desist order, the regulator took legal action against the company, successfully placing Prime Trust into receivership on July 18. This decision was based on the substantial disparity between the company’s assets and liabilities, revealing a significant financial gap.
BitGo Backs Out Acquisition Deal with Prime Trust
Aside from Prime Trust’s issues with Nevada regulators, the company also faced challenges when its rival BitGo, which wanted to buy out the firm, suddenly changed its heart and backed out of the deal in June. The termination of the supposed acquisition deal further heightened the company’s financial challenges.
The Prime Trust situation was exacerbated by regulatory findings that the firm had improperly utilized customer funds to fulfill withdrawals. The misuse of the funds allegedly began in December 2021, further adding to the company’s financial strain.
While the bankruptcy filing aims to provide a platform for evaluating strategic alternatives, the litany of problems faced by Prime Trust over the past year may complicate the search for a suitable buyer.
