The Financial Institutions Division (FID) of the Nevada Department of Business and Industry took action against Prime Trust, LLC. This US-based financial institution specializes in custody and settlement services for Bitcoin and altcoins. Here’s what happened…
Action taken for altcoins in Nevada
The FID claimed that Prime Trust violated Nevada regulations and had a shortage of client funds that had reached a critically inadequate level. As a result, the FID filed a petition to transfer the Prime Trust to the trustee. This means that a court-appointed buyer will take control of the company’s assets and operations to protect the interests of creditors and other stakeholders. The allegations against the Prime Trust are significant, with the FID claiming that the firm lost access to legacy wallets in 2021 and used client assets to buy back crypto.
Prime Trust reportedly owes clients $85,670,000 in fiat currency but only has $2,904,000, while it owes $69,509,000 in cryptocurrencies but only has $68,648,000. The transfer of Prime Trust to a trustee could have potentially significant implications for the firm’s clients. If the court accepts the petition filed by the Nevada FID, a buyer will be appointed to take control of the firm’s assets and operations.
During the term of the trustee, the trustee will manage and administer the assets and liabilities of the Prime Trust. This may include selling assets to pay creditors, meeting with customers to resolve outstanding issues, and taking other actions to end the firm’s operations. For Prime Trust clients, trusteeship can result in delays and disruptions in accessing their accounts and assets held by the firm. The trustee may be required to freeze or restrict client accounts while assessing the firm’s financial condition and developing a plan to terminate its operations.
AUDIO is at risk
Customers holding assets held by Prime Trust may also face the risk of loss if the firm’s assets are insufficient to meet its obligations. While the buyer will work to maximize the recovery of funds for creditors, the outcome of the trusteeship is uncertain and customers may not receive the full value of their assets. The petition regarding the transfer of the Prime Trust to the trustee will be subject to a hearing where the court will determine whether the firm will be transferred to the trustee and a trustee will be appointed.
News of Prime Trust’s filing for trustee sent shockwaves through the crypto-asset community, especially for AUDIO investors. According to Coinbase Director Connor, 88 percent of the cryptocurrency held by the Prime Trust is AUDIO, the native token of the Audius music streaming platform. This news may distress AUDIO investors, as the trustee process could result in significant losses for token holders.
While the buyer will work to maximize the recovery of funds for creditors and stakeholders, the outcome is uncertain and investors may not receive the full value of AUDIO assets. This is particularly worrying given the recent fluctuations in the crypto-asset markets. AUDIO among the popular altcoins has experienced significant price fluctuations in the past months, and investors may be hesitant to hold such a heavily concentrated token in the hands of a single custodian.
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