The Las Vegas-based cryptocurrency custodian, Prime Trust has filed for Chapter 11 bankruptcy Bankruptcy Bankruptcy or insolvency constitutes a legal term and refers to being unable to repay debts. A business and a person can declare bankruptcy. When a person or company claims bankruptcy, it is described as a voluntary bankruptcy, and when your debtors force you into bankruptcy, it is referred to as involuntary. A voluntary bankruptcy occurs when the debtor or borrower, the party that owes the money files with the courts. Involuntary bankruptcy happens when your credits file a petition with the co Bankruptcy or insolvency constitutes a legal term and refers to being unable to repay debts. A business and a person can declare bankruptcy. When a person or company claims bankruptcy, it is described as a voluntary bankruptcy, and when your debtors force you into bankruptcy, it is referred to as involuntary. A voluntary bankruptcy occurs when the debtor or borrower, the party that owes the money files with the courts. Involuntary bankruptcy happens when your credits file a petition with the co Read this Term protection. This marks the latest setback for the financial technology company, which has faced a series of challenges over the past year, from regulatory intervention to failed acquisition attempts.

The collapse of Prime Trust gained momentum when it was placed under receivership by the regulators in Nevada in June. This action was taken due to the company's insolvency and inability to serve its customers. Additionally, a prospective acquisition by rival crypto custodian, Bitgo fizzled out without explanation, causing concerns about the stability of the firm.

In June, Prime Trust's subsidiary, Banq, filed for bankruptcy due to alleged mismanagement under the former CEO, Scott Purcell. Besides that, partner company Abra faced a cease and desist order in Texas over securities fraud allegations.

Prime Trust Fallout

The situation worsened when the Nevada Financial Institutions Division (NFID) stepped in to shut down Prime Trust's operations, citing breaches of fiduciary duties and trust laws. The regulators reportedly discovered that Prime Trust had improperly utilized customers' funds to cover withdrawals since December 2021.

"The NFID was actively monitoring the solvency of Prime Trust in anticipation of a potential acquisition or merger," the regulator stated. "Ultimately, Prime failed to safeguard assets under its custody and cannot meet all client withdrawals. As such, Prime had breached its fiduciary duties to its clients, in violation of Nevada trust laws."

The alleged misuse of funds was exacerbated by the fact that most of the digital assets held by Prime Trust under custody were held in illiquid assets rather than a more popular cryptocurrency such as Bitcoin. Thus, the company faced mounting financial obligations.

Restructuring Operations

The former President of the Bank of Nevada, John Guedry, will lead the restructuring efforts as a receiver, while Judge Susan Johnson will oversee the bankruptcy process. Meanwhile, Prime Trust will continue to operate under the bankruptcy court's jurisdiction. However, the company plans to file a motion to continue paying employees wages and benefits during this phase.

Furthermore, the cease and desist order prompted other cryptocurrency companies to withdraw their assets from Prime Trust, causing a ripple effect within the industry. According to Tuesday's statement, Prime Trust aims to explore strategic alternatives, including the potential sale of its assets.

Founded in 2016, Prime Trust initially gained recognition for its blockchain Blockchain Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned.) In this sense, blockchain is immune to the manipulation of data making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tampe Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned.) In this sense, blockchain is immune to the manipulation of data making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tampe Read this Term-based infrastructure and APIs for financial institutions. However, the firm was recently forced to cut a substantial number of employees from its workforce.