Prime Trust's deteriorating finances lead to receivership amidst BitGo's failed acquisition

Prime Trust is now under receivership after the Nevada Financial Institution Division issued a cease and desist order against the cryptocurrency firm. The move comes five days after a proposed acquisition fell through for a renowned digital asset trust and security company, BitGo,   to acquire 100% of the equity of Prime Trust's parent company, Prime Core Technologies.

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Prime Trust under receivership after BitGo deal fell through

Prime Trust is under receivership due to a recent move by Nevada's Financial Institutions Division (FID). Based on the report, the state enforcement agency had submitted a cease-and-desist order against the firm after a failed acquisition by the digital asset trust and security company.

For the layperson, receivership is a designation of insolvency, presented as a court-appointed tool to help creditors recover funds in default. Troubled companies often employ the move to avoid bankruptcy. With a receivership in place, the lender can easily obtain funds owed to them if the borrower defaults on a loan.

The acquisition would have rescued Prime Trust, considering BitGo Holdings Inc.'s solid balance sheet, popular reputation for its credibility, and unmatched adherence to top-deck operational standards. These would have been enablers to the new venture. 

However, BitGo canceled the planned buy, hence the events have led to the current state with the Nevada regulators attempting to explain the move, saying that Prime Trust's financial condition had worsened, showing extreme deficiency, so much so that the firm was unsafe and unsound for business. According to the Nevada  FID, Prime Trust continuing operations "would be in an unviable and/or unsafe manner."

Prime Trust unable to pay outstanding obligations

In a June 27 filing, the Nevada Financial Institutions Division asked the court to confiscate Prime Trust's assets. The application also demanded stripping Prime Trust's employees of the mandate to transfer the company's property without the approval of the court-appointed receiver.

Prime Trust's inability to pay its crypto-related obligations to customers follows a June 26 revelation that the company had an $861,000 deficit. Nevertheless, recent revelations indicate that its fiat debt was worse, reaching up to $85,670,000 against a remaining balance of $2,904,000. This denotes an $82,766,000 difference.

Reportedly, the company commingled customer funds, using its clients' money stored in omnibus accounts to increase its crypto holdings between December 2021 and March 2022. The action came after Prime Trust discovered its inability to access the Legacy Wallets and the crypto stored therein.

By going into receivership, Prime Trust places itself in the custodial responsibility for its customers’ assets as it is unable to meet its financial obligations and therefore insolvent. According to the firm, this is a better fate compared to filing for Chapater 11 bankruptcy protection as it promises a better outcome for creditors.