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Crypto custodian Prime Trust filed for Chapter 11 bankruptcy in the United States state of Delaware on Aug. 14 after reporting shortfalls in customer funds. Prime Trust said it\u2019s working with 25,000 to 50,000 creditors and has liabilities of up to $500 million.\u00a0<\/p>\n
Although the news of the company\u2019s financial instability broke mid-way through August, members of the crypto community months had already flagged the company\u2019s shaky position weeks before the filing. <\/p>\n
On June 27, the business regulator in the state of Nevada\u00a0issued a cease and desist order to Prime Trust after it alleged the custodian had a shortfall of customer funds and couldn\u2019t honor customer withdrawals. <\/p>\n
Cryptocurrency exchanges BitGo and CoinMetro\u00a0posted<\/a>\u00a0on X (formerly Twitter) about service disruptions<\/a> at the hands of Prime Trust during that time period.<\/p>\n Members of the crypto community immediately responded to these updates, with one user claiming Prime Trust was \u201cgoing bust\u201d on June 22. <\/p>\n Looks like a bunch more people are going to be getting in line in bankruptcy court.<\/p>\n Prime Trust is going Prime Bust. The real question is how long has the money been missing, and where did it go?<\/p>\n The best way to run a Ponzi scheme is to create thousands of smaller Ponzi schemes\u2026 pic.twitter.com\/eUdVLMyZHE<\/a><\/p>\n \u2014 Things Sam is Freaking Out About (@Bitfinexed) June 22, 2023<\/a><\/p><\/blockquote>\n Although recent events suggest that community members\u2019 concerns were correct, on June 22, the founder and CEO of CoinMetro, Kevin Murcko, said in direct response to the posts that he wouldn\u2019t count on \u201cinsolvency\u201d for Prime Trust just yet.\u00a0<\/p>\n I wouldn’t jump the gun on assuming insolvencyfor prime trust. On our side we will make sure clients are protected. Just a bump in the road.<\/p>\n Seems bitgo was or is interested in buying PT as well.<\/p>\n \u2014 Kevin Murcko (@KevinMurcko) June 22, 2023<\/a><\/p><\/blockquote>\n Others responded to the conversation and called Prime Trust a \u201cPonzi scheme\u201d or mocked the idea of the halt on withdrawals being \u201ctemporary.\u201d\u00a0<\/p>\n And, following reports that the crypto custodian had filed for bankruptcy, one user resurrected another community member\u2019s post that had signaled Prime Trust\u2019s difficulties almost two months ahead of the news in June: <\/p>\n G spot on as usualhttps:\/\/t.co\/InAyBUpzU0<\/p>\n \u2014 BoJack (@BoJackCapital) August 15, 2023<\/a><\/p><\/blockquote>\n After the official news of Prime Trust\u2019s bankruptcy broke, the internet crypto community began to voice new suspicions.\u00a0<\/p>\n Related: <\/em><\/strong>TrueUSD assures users it has no exposure to troubled Prime Trust<\/em><\/strong><\/p>\n On Aug. 14, one user called out the financial service provider Fold \u2014 which issues Bitcoin (BTC) rewards debit cards and operates a Bitcoin-backed shopping app \u2014 for its choice to switch\u00a0to the custodian Fortress back in June when Prime Trust began to show signs of instability.\u00a0<\/p>\n Fold asked users to agree to \u201cFortress Account\u201d terms in its notice of switching custodians. The user pointed out that Fortress Trust was created by the same person who set up Prime Trust.<\/p>\n WTF @fold_app<\/a>? The same scammer who ran Prime Trust into bankruptcy started and is running Fortress. \u26a0\ufe0f pic.twitter.com\/PPc7Utwkm7<\/a><\/p>\n \u2014 \u00a7tack-O-\u00a7ats\u26a1\ufe0f (@SnarkyAlien) August 14, 2023<\/a><\/p><\/blockquote>\n Prime Trust was founded in 2016 by the entrepreneur Scott Purcell, who\u00a0left the company in 2021. That same year, Purcell created Fortress Trust, with rumors surfacing that he no longer held any equity in Prime.\u00a0<\/p>\n At the time of Prime Trust\u2019s initial troubles in June, prior to the bankruptcy, Purcell commented that Fortress had no exposure to his former company. <\/p>\n Aside from Fold, Fortress also acts as a custodian<\/a> for the fiat on-ramp Coast and the automated investment app<\/a> Soon \u2014 among others.\u00a0<\/p>\n Over the last year, the crypto space has been plagued with bankruptcies. The list of troubled companies includes FTX and Celsius, as well as Prime Trust and its payment subsidiary Banq, which also filed for bankruptcy on June 14.<\/p>\n Magazine: <\/em><\/strong>Deposit risk: What do crypto exchanges really do with your money?<\/em><\/strong><\/p>\n<\/div>\n\n
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