Prime Trust C&D: State of Nevada Says Financial Condition “Critically Deficient,” Material Breach of Fiduciary Duties

Prime Trust, once one of the most successful Fintechs serving the securities crowdfunding industry, is now insolvent, according to a document filed by the State of Nevada, Department of Business and Industry, Financial Institutions Division (NFID). In a cease and desist (C&D) order, NFID claims that Prime Trust has negative equity of over $12 million and the company’s financial condition has “deteriorated to a critically deficient level.”

NFID reports that it launched a “safety and soundness examination” in November of 2022, which remains open and ongoing.

In the past few days, the fortune of the custody provider has changed dramatically. Earlier this month, rumors circulated that Prime Trust had a cash crunch – only to receive a white knight offer from BitGo to acquire the firm. That changed this past week when BitGo announced it had terminated the acquisition agreement, and now we know why.

NFID states that Prime Trust has failed to safeguard assets under custody and, as of this past week, was unable to honor customer withdrawals.

The reverberations of Prime Trust becoming insolvent have impacted the operation of some customers. In a Tweet last Thursday from Securitize, a digital securities platform, stated:

“Securitize Markets’ operations are temporarily affected in the following ways: our Cash Balance feature and secondary trading through the Securitize Markets alternative trading system have been paused, and we are accelerating our transition to a new custodian, which was already in progress. We expect this to be completed and trading to resume as normal in approximately one month.”

Securitize assured its followers that investor funds would be protected, and in the event funds are impacted, the company would “ensure investors are made whole.”

Ram Ahluwalia, a frequent commenter on capital markets and Fintech, launched a Tweet thread with some interesting insight into why the C&D is so alarming, alluding to the possibility of fraud.

Ahluwalia did compliment the speedy action by the NFID on locking down Prime Trust.

There will be plenty of time to look back and decipher what went wrong. Not so long ago, in 2022, Prime Trust had just raised $180 million and appeared to be well-positioned for further growth. One insider told CI that the team that took over following the founder’s exit simply did not understand securities (and had little interest in learning). At the same time, Prime Trust had migrated away from more traditional exempt security offerings to the digital asset ecosystem, which was awesome until it wasn’t. In 2022/2023 multiple digital asset firms failed, including the spectacular demise of FTX – which has harmed the entire crypto industry.


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