- Bitcoin custodian Prime Trust was yesterday issued with a cease-and-desist order
- Prime Trust “materially and willfully breached its fiduciary duties to its customers”
- BitGO has killed its buyout of the company as a result
Bitcoin custodian Prime Trust has “a shortfall in customer funds” according to the Nevada Department of Business and Industry, which has led to BitGo bailing on a deal to buy out its competitor. The authority revealed the news yesterday, which confirmed the thoughts of many that Prime Trust was in trouble and which now raises questions about how the financial operations of a Bitcoin custodian can have “deteriorated to a critically deficient level”.
Prime Trust Lost Customer Funds
BitGo announced a deal to buy out Prime Trust, which was founded in 2016, at the start of the month amid rumors that the latter needed $25 million to stay afloat. It has been assumed that the deal would banish all such concerns, but the Financial Institutions Division of the Nevada Department of Business and Industry yesterday brought the situation into sharp relief in a cease-and-desist order:
On or about June 21, 2023, Respondent 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. Respondent has materially and willfully breached its fiduciary duties to its customers by failing to safeguard assets under its custody and is unable to meet all customer disbursement requests.
The order added that due to the “critically deficient level” of its finances, which includes a negative $12 million stockholders’ equity position, the company is “now in [the] position where it is in an unsafe or unsound condition to transact business and/or if it were to continue to operate it would be in an unviable and/or unsafe manner.”
Questions will now rightly be asked how a company that is supposed to do nothing but guard customers’ holdings could end up losing them. Presuming its owners aren’t going to pull a Mark Karpeles and claim that they had been hacked but didn’t know it, this suggests some kind of misappropriation of funds.
BitGo Says Bit-no
The news came after BitGo announced that it had scrapped the deal to take over Prime Trust, presumably having been informed ahead of publication what the Nevada Department of Business and Industry had found:
After considerable effort and work to find a path forward with Prime Trust, BitGo has made the hard decision to terminate its acquisition of Prime Trust. This decision was not made lightly and BitGo remains committed to our mission to deliver trust in digital assets.
— BitGo (@BitGo) June 22, 2023
BitGo’s decision to bail on a move for Prime Trust is a little ironic given that Galaxy Digital pulled out of a deal to buy BitGo itself at the eleventh hour two years ago.