Crypto infrastructure and custody firm Prime Trust has revealed the factors behind its bankruptcy filing, with interim CEO Jor Law pointing to a mix of operational mismanagement, TerraUSD-related losses, and a long-running wallet access problem. In a declaration submitted alongside the Chapter 11 petition, Law said the company continued spending heavily during the 2022 crypto downturn even as revenue weakened.
According to the filing, Prime Trust recorded $10.5 million in expenses against just $3.1 million in revenue in October 2022. The company also suffered losses linked to the collapse of the stablecoin TerraUSD, including $6 million in customer funds and $2 million from its own treasury.
The “Wallet Event” at the center of the collapse
Law said the main trigger behind Prime Trust’s downfall was a so-called “Wallet Event.” In 2018, the company created a cold storage wallet secured through cryptographic keys stored on Trezor and Ledger devices. Backup seed phrases were reportedly held on physical Cryptosteel units designed for long-term secure storage.
In 2019, Prime Trust moved customer assets to a new digital asset platform operated by Fireblocks. But because of a communication failure, some customers continued sending crypto to the old cold wallet. When those customers later requested withdrawals, the company discovered it could no longer access the legacy wallet without the necessary physical key materials. The original Cryptosteel devices have not been located.
To meet withdrawal demands, Prime Trust used $76 million in customer funds between December 2021 and March 2022 to buy replacement crypto assets. The episode highlighted serious weaknesses in custody operations, internal controls, and asset reconciliation.
Regulatory fallout and restructuring path
Prime Trust’s inability to safeguard customer assets put it in violation of Nevada trust company rules, according to the filing. That led to broader regulatory consequences across multiple states. In June 2022, Nevada’s Financial Institutions Division issued a cease-and-desist order barring the company from opening new customer accounts. As licensing problems mounted, Prime Trust’s business contracted and its ability to raise fresh capital deteriorated.
In July, a Nevada court placed the company into receivership at the request of state regulators and authorized a special restructuring committee to pursue bankruptcy protection. Law said the Chapter 11 process is intended to preserve assets, maintain state licenses, address the company’s financial condition, and continue investigating the inaccessible wallet. Prime Trust may also seek new financing, a sale, or recapitalization through the court-supervised process.