CompaniesGlobal News

What is the Sequence of Errors Behind Prime Trust’s Bankruptcy Declaration?

In a submission to the U.S. Bankruptcy Court in Delaware last Thursday, Prime Trust’s CEO Jor Law detailed how the company faced a dual onslaught of the plummeting cryptocurrency market and a leadership team that failed to alter its course amidst the downturn.

Rather than adapting, Law – who assumed the role of interim CEO in November of the prior year – explained that the company’s past executives persisted in extravagant spending despite dwindling revenues.

According to Law, Prime Trust expended approximately $10.5 million in October, while generating only around $3.1 million in revenues, resulting in a substantial net loss of more than $7 million. This pattern continued the following month, with spending escalating to $11.1 million, resulting in another substantial net loss of about $8.4 million.

One of the significant setbacks that directly impacted the company too was the downfall of TerraLUNA in May, stemming from the collapse of Terra’s UST stablecoin and LUNA governance token. Law disclosed that Prime Trust had invested $6 million from client funds and an additional $2 million from its own reserves into Terra before its collapse.

In a particularly glaring incident, the company recounted how it inadvertently locked itself out of its own cryptocurrency wallet. Within the subsection titled “The Wallet Event,” Law described how company executives utilized a “cold storage wallet” to secure tokens, including ETH and ERC-20 compliant coins. A specific wallet, referred to as the “98f Wallet,” was established in March 2018 as a device necessitating both physical possession and multiple signatures for access.

In the year 2019, Prime Trust made a transition of its wallets to a system managed by the digital security platform Fireblocks. Unfortunately, the company remained unaware that the shift from the older wallets to the new system was incomplete. This oversight led to the continuation of providing clients with addresses that allowed them to deposit funds into the 98f wallet.

These errors came to light only when an unidentified customer requested a significant withdrawal of ETH that Prime Trust was unable to fulfill. The situation worsened as it was discovered that the physical devices required to access the old wallet, namely the engraved Cryptosteel plates, were no longer in the company’s possession. Even now, Prime Trust has not been able to regain access to the 98f wallet.

In response, “certain company employees,” according to Decrypt, began using fiat currencies from client accounts to buy ETH and fulfill withdrawal demands between December 2021 and March 2022. This effort consumed more than $76 million. Subsequently, Prime Trust’s issues started to snowball. In June, regulatory authorities targeted two of Prime Trust’s partners, and a merger agreement with crypto custodian BitGo collapsed within a mere two weeks of being finalized.

On June 27, regulators in Nevada moved to close down Prime Trust after uncovering the company’s substantial debts in both fiat and cryptocurrencies owed to clients. Officials stated that Prime Trust had a fiat debt exceeding $85 million with only about $2.9 million in available funds. In terms of cryptocurrencies, the company owed around $69.5 million with only slightly over $68.6 million accessible at that time.

Following an initial placement into receivership, Prime Trust eventually initiated a bankruptcy filing on August 14.

News Desk

Unlock News Desk, is a group of Blockchain and Crypto enthusiastic young people, working to keep Unlock readers up to date with the industry news. Connect with the team via email: info(@)

Related Articles

Back to top button