Legal Filing Lays Bare Scale of Prime Trust Disaster

Reading Time: 2 minutes
  • A bankruptcy filing for Prime Trust has revealed significant missteps, including overspending and being locked out of its cryptocurrency wallet
  • CEO Jor Law disclosed the company’s issues including with reckless expenditures and failed management responses to the crypto market downturn
  • Prime Trust’s downfall was compounded by regulatory issues, a collapsed merger deal, and insurmountable debts

The extent of the mishandling of funds by crypto custodian Prime Trust has been laid bare in a bankruptcy filing, with reckless overspending and a failure to react to the market downturn among the company’s issues. Prime Trust’s CEO, Jor Law, outlined a series of mistakes that led to its financial woes and eventual collapse which took place in June when the Nevada Department of Business and Industry issued a cease-and-desist order.

Spending Got Out of Hand

Law’s court filing, submitted to the U.S. Bankruptcy Court in Delaware, outlined a dire situation that Prime Trust found itself in. He detailed how the company faced a combination of challenges, including a collapsing crypto market and a management team that failed to adjust its strategies accordingly. Despite dwindling revenues, the company’s previous leadership continued to spend excessively, exacerbating its financial troubles.

In specific terms, Law noted that Prime Trust spent around $10.5 million in October 2022, while its revenues were only about $3.1 million, resulting in a staggering net loss of over $7 million. The following month, the spending spree continued, with expenses reaching $11.1 million and the company incurring another net loss of approximately $8.4 million.

One particularly damaging event for Prime Trust was its involvement with the Terra ecosystem, which collapsed in May 2022 due to the failure of Terra’s UST stablecoin and LUNA governance token. Prime Trust had invested $6 million in client funds and $2 million from its treasury into Terra before its failure.

Failed Migration Was Final Straw

Perhaps the most significant setback involved the company’s cryptocurrency wallet. Law recounted the “Wallet Event,” where Prime Trust executives used a “cold storage wallet” to hold tokens, including ETH and ERC-20 coins. Despite moving wallets to a new system operated by digital security platform Fireblocks, the company had unknowingly left the migration incomplete. As a result, customers were still being provided with addresses for the old wallet, leading to confusion and loss of access.

Prime Trust employees reportedly began using fiat currencies from client accounts to purchase ETH and fulfill withdrawal requests, using over $76 million from December 2021 to March 2022. This financial mismanagement compounded Prime Trust’s challenges.

The company’s situation further deteriorated as it faced regulatory scrutiny and a failed merger deal with crypto custodian BitGo. On June 27, regulators moved to shut down Prime Trust due to its massive debts. Ultimately, Prime Trust’s journey from regulatory issues to a failed merger and financial mismanagement culminated in its decision to file for bankruptcy on August 14.