Crypto Custodian Prime Trust Faces Financial Woes: $8M Loss in Ill-Fated Investment and $76M Wallet Bungle

Crypto Custodian Prime Trust Faces Financial Woes: $8M Loss in Ill-Fated Investment and $76M Wallet Bungle

Crypto News – Prime Trust, a prominent crypto custodian, found itself in dire straits after a wallet blunder in 2021, leading to a staggering $76 million loss. This substantial financial hit was disclosed in a court filing following the custodian’s receivership in July.

In a recent court submission, CEO Jor Law revealed that Prime Trust incurred losses of $6 million in client funds and an additional $2 million from its own reserves due to an ill-fated investment in the terraUSD algorithmic stablecoin. This move proved disastrous for the company’s financial standing.

Law, who assumed the position of CEO on November 29th, following his tenure on the board, also brought attention to a mishap from January 2021. During this incident, customers were mistakenly instructed to send funds to an inaccessible wallet, a blunder that forced the company to expend $76 million to acquire ether (ETH) in order to fulfill withdrawal demands.

This testimony, submitted as part of the bankruptcy proceedings, is the latest development in a series of allegations pointing to financial mismanagement and inadequate governance within the cryptocurrency sector. This sector has witnessed former executives, such as Alex Mashinsky from Celsius and Sam Bankman-Fried from FTX, facing charges of fraud, to which they have pleaded not guilty.

In June, Prime Trust encountered a substantial deficit, with a shortage of $861,000 in digital currency and nearly $83 million in fiat currency. These revelations were shared by Law during proceedings in Delaware, as the company moved towards receivership and eventual bankruptcy shortly thereafter.

The collapse of Terra in May 2022 had profound ramifications across the industry. Terra’s attempt to anchor its value to the U.S. dollar through automated trading sent shockwaves, ushering in what many dubbed a new ‘crypto winter.’

Despite these challenges, the Prime Trust group appeared to escalate its expenditures even after this turbulent period, incurring expenses that appeared disproportionate. Law highlighted that in November 2022, when he wasn’t yet at the helm, the company spent $11.1 million despite generating revenues of just $2.7 million.

Prime Trust was on the brink of being acquired by its counterpart, BitGo, yet the deal fell through in June due to concerns regarding Prime Trust’s financial stability. Subsequent events validated these concerns as, merely five days later, Nevada regulators moved to place both Prime Trust and its parent company, Prime Core Technologies, under receivership.

This narrative underscores the challenges and financial uncertainties that continue to pervade the cryptocurrency industry, shedding light on the pressing need for robust financial management and governance.