2026-07-28 · Illicit Finance
A regulated Nevada trust company lost access to a set of legacy wallets holding customer assets. In July 2025 a bankruptcy court decided who owned the rest of it, and the answer did not depend on anybody’s contract.
Case file
| Field | Value |
|---|---|
| Matter | In re Prime Core Technologies Inc., et al. |
| Court | D. Del. Bankr., the Hon. J. Kate Stickles |
| Docket | Jointly administered under No. 23-11161 (JKS) |
| Debtors | Prime Core Technologies Inc., Prime Trust LLC, Prime IRA LLC, Prime Digital LLC |
| Petition date | 14 August 2023 |
| Regulator | Nevada Financial Institutions Division |
| Cease and desist | 21 June 2023; modified 14 July 2023 |
| Equity position | negative $12,071,508, per its 31 March 2023 NMLS MSB Call Report |
| Fiat shortfall | approx. $85m owed against approx. $3m on hand. Not in the FID order; sourced to the receivership petition and bankruptcy filings |
| Ownership decided | 18 July 2025, Opinion on the Distribution Motion, D.I. 919 |
| Holding | Customer currency is property of the estates. No trust formed, and in the alternative, assets hopelessly commingled and not traceable |
| Distribution | Dollarised at petition-date value, 11.59 p.m. UTC, pro rata to unsecured creditors |
| Posture as of 28 July 2026 | Ownership resolved. Case open: litigation trust proceedings live, omnibus hearings through November 2026 |
What the record shows
Prime Trust was a Nevada-chartered trust company providing custody and payment infrastructure to other digital-asset businesses. Its direct customers were mostly companies, referred to throughout the bankruptcy as Integrator Customers, who in turn served retail users, referred to as End-User Customers. Prime contracted with roughly 140 Integrators and thousands of End-Users, and at its peak there were dozens of variations of the governing agreements.
Prime Trust was granted a Nevada trust company licence under NRS 669 on or about 26 January 2017. The Financial Institutions Division commenced a safety and soundness examination on 7 November 2022, with an original scope as of 30 September 2022. That examination was still open when the Division acted, having been widened, in the order’s words, “due to NFID expanding the scope of examination and the need to monitor the solvency of the trust company.”
On 21 June 2023 the Division issued a cease-and-desist order. The Commissioner found that Prime Trust had reported negative $12,071,508 in stockholders’ equity in its 31 March 2023 Nationwide Multistate Licensing System Money Service Business Call Report, against a statutory floor of $1,000,000 under NRS 669.100(1). The company’s overall financial condition had “considerably deteriorated to a critically deficient level”. On or about 21 June 2023 it “was unable to honor customer withdrawals due to a shortfall of customer funds caused by a significant liability on the Respondent’s balance sheet owed to customers.”
The finding that matters most for a custodian is at paragraph 13. Prime Trust, the Commissioner concluded, “has materially and willfully breached its fiduciary duties to its customers by failing to safeguard assets under its custody and is unable to meet all customer disbursement requests.”
The Commissioner found violations of NRS 669.100(1) and NRS 669.2825(1)(a), (b), (c), (f) and (k). The Division modified the order on 14 July 2023 and petitioned a Nevada court to place the company into receivership.
On the $85 million figure. The widely repeated numbers, roughly $85 million owed against roughly $3 million on hand, do not appear anywhere in the cease-and-desist order. The order quantifies only the equity position. The dollar figures for the shortfall come from the receivership petition and the bankruptcy filings, which are separate documents. This article does not attribute them to the Division’s order.
Prime Core Technologies Inc. and three affiliated debtors filed voluntary Chapter 11 petitions on 14 August 2023 in the District of Delaware, jointly administered under No. 23-11161 before Judge J. Kate Stickles.
The legacy wallets
The chronology that produced the shortfall, as described in coverage of the bankruptcy filings: Prime Trust had migrated wallet infrastructure to the Fireblocks platform, struck difficulty creating new wallets there, and in January 2021 reintroduced forwarding of customer assets to a set of older wallets. By December 2021 it found it could not access those legacy wallets or the cryptocurrency in them. Between December 2021 and March 2022 it bought replacement digital currency using customer money drawn from omnibus customer accounts in order to meet withdrawals.
Whose crypto was it
The confirmed plan set up machinery to answer that account by account. The Plan Administrator was to determine, for each Integrator Customer account, whether the currency in it was a Non-Estate Asset under Article 2.5(b)(ii) of the plan, belonging to the customer, or property of the Debtors’ Estates under Article 2.5(b)(iii). That turned on which version of a master service agreement the Integrator held. Notices went out on 3 May 2024 and 1 November 2024, and the Estate Property Determination Notice was served on 15 January 2025.
The machinery never decided it. The Plan Administrator moved instead for an order approving a single determination covering all of the currency. Judge Stickles held an evidentiary hearing on 14 and 21 February 2025. Four objectors prosecuted objections: Coinbits Inc., George Kushner, three members of the Narayanan family, and Colleen McClenaghan. They argued the motion violated due process and that the funds were held in trust and traceable.
On 18 July 2025 the court granted the motion, on two independent grounds.
No trust relationship was formed. The Master Services Agreement covering a vast majority of Integrators said the agreement did not “create a partnership, franchise, joint venture, agency, fiduciary or employment relationship between the Parties.” The Custodial Services schedule gave Prime the ability to invest, rehypothecate, and move cash or fiat at its sole discretion. The only evidence the objectors offered was the End-User Agreement, which reads in part that Prime Trust may “pledge, repledge, hypothecate, rehypothecate, sell, or otherwise transfer or use any amount of such securities or other assets with all attendant rights of ownership and without any obligation to maintain in its possession or control a like amount”.
In the alternative, nothing was traceable. A claimant to commingled funds must make two showings: that a trust relationship and its legal source exist, and that the trust funds can be identified and traced. James P. Brennan, a forensic accountant at J.S. Held, testified that Prime held customer fiat in omnibus bank accounts alongside money from thousands of other customers and its own operating revenue, moved funds between customer and corporate accounts, and appears to have paid corporate operating expenses out of accounts primarily funded by customers. On the internal records: “The ledger was fraudulently manipulated, and so we can’t rely upon that ledger, and that’s why we rely on the blockchain records, as well as the bank statements.”
The objectors’ strongest argument was the one most Bitcoin holders would make. Bitcoin uses the unspent transaction output model, so each transfer should be traceable by its UTXO. Brennan’s answer was that Prime kept no segregated wallets, swept each customer’s deposit address into shared omnibus wallets, and that “the repeated process of condensing multiple UTXOs into new single UTXOs invalidates anyone’s ability trace customer’s specific crypto.” The objectors submitted account statements showing deposits and nothing beyond them.
Applying the lowest intermediate balance test, which the Third Circuit has never formally adopted but which its courts routinely apply, the court found the debtors “hopelessly commingled Currency such that the Currency is not traceable.” Property held by a debtor is presumed to be estate property. The currency was therefore the estates’, to be dollarised at its fair market value as of the petition date at 11.59 p.m. UTC under section 502(b) and distributed pro rata to unsecured creditors.
Judge Stickles closed: “Although the result may be disappointing to certain creditors, the Court is bound by the evidence before it and the law governing the issues.”
The case is not over
The ownership question is settled. The bankruptcy is not. The PCT Litigation Trust has adversary proceedings on foot against former counterparties, and in 2026 filed a second motion to further stay End-User Adversary Proceedings and a third motion to extend time for service of process, both heard on 23 June 2026. The Plan Administrator obtained a fourth extension of time to object to claims on 13 July 2026. Omnibus hearings are scheduled for 22 September, 20 October and 17 November 2026.
What I think happened
Prime Trust complicates the tidy lesson everybody drew from FTX. The tidy lesson is “do not leave assets on an exchange, use a custodian.” Prime Trust was a custodian. Chartered in Nevada, supervised, marketed on exactly the separation the FTX lesson tells you to look for. It still lost customer assets, and not through a trading desk gambling with deposits. It was an infrastructure migration that went wrong followed by roughly eighteen months of not saying so. Once you are covering an obligation to customer A with money belonging to customer B, the accounting has stopped describing reality, and every month that passes makes disclosure more expensive than concealment.
The part I find hardest to look away from is what happened to the contract question.
For two years this case ran a determination machine. Which master service agreement did your Integrator sign. Which subsection of Article 2.5(b) did that put you in. Notices, determination dates, response deadlines, a determination notice in January 2025. An end user of some fintech built on Prime rails had no way to find out which side of that line they were on, because the agreement was between two companies and one of them they had never heard of.
Then the court decided the question and the contracts turned out not to matter. Everyone landed in the same place. Not because the agreements all said the same thing, but because the assets could not be told apart, so a favourable agreement had nothing to attach to. Two years of machinery, and the answer came from a forensic accountant reading bank statements.
What decided this was not the legal document. It was the bookkeeping. Prime’s own records were the evidence against its customers: an internal ledger the court accepted had been fraudulently manipulated, omnibus wallets with no per-customer allocation, sweeps that folded everybody’s coins into shared UTXOs. A trust can exist over a pooled fund. It cannot exist over a pool nobody can account for.
I would sit with the UTXO argument, because it is the one most readers would have made. Bitcoin is traceable by design. Every transfer is public. That intuition is right about the chain and wrong about the claim. Your coins went into a deposit address, the custodian swept that address into an omnibus wallet holding thousands of others, and the sweep is where your ownership stopped being visible. The public ledger records what moved. It does not record whose it was.
What would have changed the outcome
The FTX article in this cluster argues for moving assets off exchanges to a qualified custodian. Prime Trust is why that advice needs a second half: diligence the custodian, and ask what the records look like, not only what the contract says.
Questions worth answering before assets move, and worth re-answering annually:
- Is it a qualified custodian in the regulatory sense that applies to you, or a company using the word? Which regulator, which charter, which jurisdiction?
- Who holds title under the agreement? Read for the words Prime used. Rights of ownership, rehypothecate, invest at its sole discretion, and any clause disclaiming a fiduciary relationship. Those are not boilerplate.
- Is there a per-customer record, and does it reconcile? Pooling by itself decides very little. New Zealand’s High Court held in Ruscoe v Cryptopia that mixing fungible property in a single pool is not a significant indicator against a trust, and Cryptopia’s account holders kept their coins because its database showed who held what. Prime pooled the same way and had no record anyone could rely on. Ask who reconciles the pool against the customer list, how often, and whether anyone outside the company checks.
- Who can demonstrate the assets exist? A proof of reserves, attestation, or audit by a named firm, with a date on it.
- Concentration. One custodian holding everything is a single point of failure even when it is a good custodian.
DAG coordinates custody with third-party independent qualified custodians and works through this diligence with holders as part of that, which is what the coordination role covers.
The honest limitation, and this case is the proof of it: no arrangement removes counterparty risk. It moves and changes shape. Independent custody separates your assets from the balance sheet of the platform you trade through, which is a real improvement on an exchange balance. It replaces that exposure with exposure to the custodian. The diligence above is the actual work. As DAG’s own disclosure puts it, custody arrangements with third-party independent qualified custodians reduce certain risks but do not eliminate them. Prime Trust is what the remaining risk looks like.
Sources
- In re Prime Core Technologies Inc., et al., No. 23-11161 (JKS) (Bankr. D. Del.), Opinion of the Hon. J. Kate Stickles on the Plan Administrator’s Distribution Motion, 18 July 2025, Related D.I. No. 919.
- In re Prime Core Technologies Inc., et al., voluntary petitions filed 14 August 2023. Docket administered by Stretto at
cases.stretto.com/primetrust. - Declaration and Supplemental Declaration of James P. Brennan, J.S. Held, and his hearing testimony of 14 and 21 February 2025, as quoted in the Opinion.
- Plan Administrator’s Initial Notice to Integrator Customers of Account Treatment Procedures, 3 May 2024; Further Notice, 1 November 2024; Estate Property Determination Notice, 15 January 2025.
- Radnor Holdings Corp. v. PPT Consulting, LLC (In re Radnor Holdings Corp.), No. 06-10894 (PJW), 2009 WL 2004226 (Bankr. D. Del. 9 July 2009).
- Alameda Research Ltd v. Giles (In re FTX Trading Ltd.), No. 22-11068 (JTD), 2024 WL 4562675 (Bankr. D. Del. 23 Oct. 2024).
- Ruscoe v Cryptopia Ltd (in liquidation) [2020] NZHC 728, Gendall J, at 157.
- Nevada Financial Institutions Division, Order to Cease and Desist, 21 June 2023; Order Modifying Cease and Desist, 14 July 2023; petition for receivership, June 2023.
- Arkham Intelligence, wallet attribution analysis, 2023.
Related on this desk
- Ruscoe v Cryptopia: crypto can be held on trust — the pooling point, and why a per-customer record is what actually decides these cases.
- Celsius: the ruling that turned 600,000 depositors into unsecured creditors — the terms-of-use route to the same outcome.
- FTX: what happens to your coins when the exchange files Chapter 11 — the argument for a custodian that this case is the second half of.
Corrections
1 August 2026. This article previously said the ownership question was still being decided account by account under Article 2.5(b) of the plan, and the analysis section argued that an end user’s outcome depended on which master service agreement their Integrator had signed. That was wrong. Judge Stickles decided the question for every account in a single Opinion dated 18 July 2025 (D.I. 919), holding that no trust relationship was formed and that, in the alternative, the currency was hopelessly commingled and untraceable, so all of it is property of the estates. The determination-notice machinery described in the earlier version was real, and it was overtaken. The case file and the first two sections have been rewritten around the opinion. The diligence question “segregated or omnibus?” has also been corrected: pooling on its own is not what decides these cases, and the earlier framing implied it was.
Disclosure. Max Avery is affiliated with Digital Ascension Group (DAG). Investment advisory services are offered through DAG Wealth, an SEC-registered investment adviser (CRD No. 328627). Registration does not imply a certain level of skill or training. DAG is not a law firm and does not provide legal or tax advice. Custody arrangements with third-party independent qualified custodians reduce certain risks but do not eliminate them. Nothing here is investment, legal, or tax advice, or a recommendation to buy or sell any asset. This article describes matters of public record.