Prime Trust Lost Wallet Access in 2021 and Owes $155 Million

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  • Prime Trust lost access to some crypto wallets in 2020 and used customer funds to buy back the contents
  • As a result, the company owes customers $155 million
  • Nevada’s Financial Institutions Division has filed a receivership request

Bitcoin custodial company Prime Trust lost access to some of its crypto wallets containing customer bitcoin in 2021 and attempted to buy them back with incoming funds, according to Nevada’s Financial Institutions Division. The authority filed yesterday to take over the company and freeze all of its businesses, revealing in the filing that Prime Trust lost access to its ‘legacy wallets’ containing an unspecified amount of bitcoin after outsourcing its storage to Fireblocks. As a result, the company owes its clients over $85 million in fiat and a further $69.5 million in crypto.

Prime Trust Rebought Lost Coins with Customer Funds

Rumors have been circulating for a few weeks that Prime Trust was in financial difficulties, but with a potential BitGo takeover, these seemed buried. However, BitGo pulled the plug on the deal the day that The Nevada Department of Business and Industry filed a cease-and-desist order against the company.

Yesterday’s request for receivership revealed the mess that Prime Trust got itself into, which started when Prime Trust and Fireblocks entered into an agreement in 2020 that saw Fireblocks manage Prime Trust’s crypto assets. However, in 2021, Prime Trust changed management and implemented a feature called “legacy wallet forwarding” for wallets associated with Fireblocks’ platform. This feature allowed funds to be forwarded to wallets on Fireblocks’ platform, but in December 2021 Prime Trust discovered that it was unable to access its legacy wallets and the cryptocurrencies held within them; the exact numbers have not been revealed.

Prime Trust then set about pulling a MtGox and resorted to buying back its lost crypto with customer funds to fulfill withdrawal requests, essentially operating a Ponzi scheme. All its efforts to regain access to the legacy wallets failed, leaving the coins lost forever.

Nevada Wants to Take Control

The financial upshot of all this is that Prime Trust owes its clients at least $85 million in fiat, with just $3 million on hand to pay them back. The company owes another $69.5 million in crypto, although it has $68.6 million in crypto on hand to pay that part of the debt off.

Fireblocks clarified that the legacy wallets were solely controlled by Prime Trust, and no funds held by Fireblocks are affected. According to Fireblocks’ statement, after Prime Trust became a Fireblocks customer, the new management decided to deposit customer assets into old legacy wallets. Once the assets were moved to these legacy wallets, they became irretrievable.

A press release from a spokesperson from Nevada FID stated that the petition seeks the court’s appointment of a receiver to assume control of the company’s daily operations and conduct a comprehensive examination of its financial situation. This examination aims to determine the most suitable course of action for safeguarding Prime’s clients, either through rehabilitating and returning the company to private management or through liquidation.

Simultaneously, the filing requests the court to impose a ban on Prime Trust, along with its officers, directors, stakeholders, and other parties, preventing them from disposing of any assets belonging to Prime Trust or engaging in any transactions.