After Prime Trust filed for bankruptcy protection, the company’s interim CEO Jor Law cited excessive spending, losses on the stablecoin terrausd, and problems accessing customer funds held in cold storage wallets as contributing factors.
From Cold Storage to Cold Reality: The Dramatic Decline of Prime Trust
In a declaration filed along with the bankruptcy petition on August 24, Prime Trust’s current CEO Jor Law summarized the company’s slide into insolvency. He stated that prior management engaged in lavish spending despite depressed revenues during the “crypto winter” of 2022.
This included $10.5 million in expenses against just $3.1 million in revenue in October 2022. The company also lost $6 million in customer funds and $2 million of its own corporate treasury money after investing in the failed stablecoin terrausd.
However, the main factor precipitating Prime Trust’s downfall was what Law described as a “Wallet Event.” In 2018, the company set up a cold storage wallet secured by cryptographic keys held on Trezor and Ledger hardware devices. Seed phrases needed to access the wallet if the devices were lost were stored on specialized Cryptosteel physical devices.
In 2019, Prime Trust migrated customer funds to a new digital asset platform by Fireblocks. But due to a communication breakdown, some customers continued depositing cryptocurrency into the old cold storage wallet. When customers later sought withdrawals, Prime Trust discovered the wallet was inaccessible without the physical keys.
From December 2021 to March 2022, Prime Trust used $76 million in customer funds to purchase replacement crypto for withdrawals. The whereabouts of the original Cryptosteel devices remain unknown.
Prime Trust’s failure to secure customer funds put them in violation of Nevada’s trust company regulations. This triggered a cascade of license revocations in other states, restricting the company’s business. The Nevada Financial Institutions Division issued a cease-and-desist order in June 2022 prohibiting new customer accounts.
With business declining, the company was unable to raise sufficient capital to stay solvent. The Nevada court placed Prime Trust into receivership in July on the petition of state regulators. A special restructuring committee was empowered to file for bankruptcy.
In his declaration, Law said the Chapter 11 filing will allow Prime Trust to protect assets, maintain state licenses, address its financial condition, and investigate the irretrievable wallet. The company may seek new financing, a sale, or recapitalization through the court process.
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