Nevada has asked a federal court to appoint a receiver for Prime Trust, alleging that the custodian used customer funds to buy cryptocurrencies after losing access to digital wallets containing tens of millions of dollars in assets.

The 30-page receivership petition filed Monday demands an immediate impounding of all assets of Las Vegas-based Prime Trust, as well as its documents and records. It also asks the court to enjoin Prime, including its officers and agents, from touching any of the company’s funds. The Nevada Financial Institutions Division had ordered Prime Trust to halt all deposits of fiat and digital assets from within the state of custody. Prime Trust didn’t return requests for comment.

Prime Trust once played a significant role in the infrastructure of crypto markets, holding funds on behalf of companies like FTX, Binance.US and Celsius Network. Custodians typically hold dollars and digital assets on behalf of customers, putting the funds in their own accounts. The firms are meant to be among the safer parts of the financial system, not engaging in risky activities.

Around December 2021, Prime discovered that it was unable to access some of its wallets where it stored cryptocurrency, according to the petition. From December 2021 to March 2022, Prime purchased additional digital currency using customer money from its omnibus customer accounts to satisfy withdrawals.

“Prime is reported to have been making efforts to regain access to the Legacy Wallets,” the petition said. “However, as of the date of this Petition, Prime has been unable to do so.”

The company, which is a unit of Prime Core Technologies Inc., currently owes $85.67 million in fiat to its clients, the petition said, “but has $2,904,000 in fiat currency.” Prime also owes $69.5 million to its clients in digital assets but only has $68.65 million in digital currency, it said.

“As such, Prime would be unable to satisfy all of its withdrawals,” the petition said.

The petition asks the court to appoint a receiver to take over the day-to-day operations of the company and examine its finances, in order to decide whether it should be liquidated or revamped. The motion was made with the Eighth Judicial District Court of Nevada, after determining “that Prime is operating in an unsafe and unsound manner and is insolvent,” as alleged in its prior cease-and-desist order from June 21.

According to the filing, Prime Trust created a digit wallet in 2018 for holding crypto for its customers. It than used the digital asset platform Fireblocks to store all crypto assets held in custody, though the original wallet continued to exist and was marked as inactive. After the migration to Fireblocks was completed, Prime Trust came under new management, led by Tom Pageler.

In January 2021, the firm reintroduced the legacy wallets to customers, the petition said. Prime Trust wasn’t able to access the legacy wallets on or about December 2021.

“We handed the reins of a very profitable company,” Scott Purcell, the former chief executive of Prime Trust, said in an interview with Bloomberg News. Purcell and several members of his team had left to start another venture, Fortress.io.

The filing didn’t explain why Prime couldn’t access the wallets. But in late 2022, Jor Law — a long-time board member of Prime Trust — was appointed as the company’s new CEO to turn the company around.

To add to the troubles, last year, about half a dozen US states, including Connecticut and Idaho, had issued cease-and-desist or similar orders against Prime Trust for operating without proper money-transmitter licenses.

Crypto lender Celsius Network, which went bankrupt in 2022, sued Prime Trust for failing to transfer its money last year. The case was dismissed after Prime Trust agreed to return the funds.

Prime Trust was also associated with FTX, the crypto exchange of Sam Bankman-Fried that imploded last November leading to charges against its founder. According to records of the Federal Election Commission, Bankman-Fried sent some political donations through Prime Trust, according to a Texas regulatory filing.

“FTX may have used assets owned by its clients to make these political contributions through Prime Trust,” according to the Texas filing.

Prime Trust was also mentioned in a recent case against Abra, which illegally sold securities to investors. Abra directed Texas investors to invest into the service through Prime Trust, even though Prime didn’t have a money-transmitter license in the state.

Banq, which was spun out from Prime Trust in 2021, went bankrupt in June. Banq investor, N9, sued Banq, Prime and one of its co-founders for fraud. Banq, meanwhile, is suing Purcell and several other executives, claiming they stole its intellectual property and other assets when they left — charges they deny.

Custodian BitGo dropped its plans to purchase Prime Trust on June 22, the day of Nevada’s cease-and-desist order, alleging a shortfall of customer funds, became known.

(Adds details from Texas regulatory filings, ex-CEO interview.)