Prime Trust wallet is missing! Client funds were misappropriated to invest in LUNA

Prime Trust admitted in documents submitted to the bankruptcy court that the parent company had misappropriated customer funds, leading to a crisis in the company's operating conditions and further bankruptcy.

Lost the wallet and "misappropriated" US$76 million in customer funds

First of all, in the document submitted on Thursday (24th), Prime Core interim CEO Jor Law mentioned that " The reason behind the "lost wallet incident".

In 2018, Prime Core launched a cold storage wallet (Legacy Wallets) designed to monitor the reserve status of Bitcoin (BTC), Ethereum (ETH) and other "compliant" crypto assets . However, a security vulnerability occurred in the company's wallet, which allowed multiple signers to access the wallet with the last three codes of the address "98f", triggering a series of security issues. This vulnerability puts the security of customers' encrypted assets at risk, potentially causing them to be lost or stolen. Prime Core should take immediate action to fix this vulnerability and ensure the safety of users' assets. At the same time, they also need to conduct a comprehensive security review of all wallets to avoid similar problems from happening again and protect user trust.

Prime Core recently decided to adopt the Fireblocks custody platform to store customer assets. However, in December 2021, they faced a problem. One user requested a large ETH withdrawal, but the company found that the wallet on the Fireblocks platform was unable to meet the demand. That’s when they realized that some employees were transferring cryptocurrency assets to wallet addresses ending in “98f” outside of the Fireblocks platform.

The company discovered that they were unable to access the wallet device, resulting in Prime Core being unable to withdraw cryptocurrencies from the 98f wallet.

According to Law’s explanation, some company employees began using fiat currencies in customer accounts to purchase ETH and meet withdrawal requirements between December 2021 and March 2022, using a total of more than $76 million in funds. .

Losed US$8 million by investing in TerraUSD

In addition to misappropriating customer funds, Jor Law also pointed out that the company had other obvious faults and failures. This included an $8 million loss from an investment in the collapsed algorithmic stablecoin TerraUSD, of which $6 million was customer funds. That investment, along with increased spending in October and November last year, contributed to the company's collapse.

When he became interim CEO in November, Law explained the double whammy Prime Trust was hit with: the collapse of the crypto market and the management team’s failure to change course during the plunge. He noted that the company's previous leaders significantly increased spending amid tight revenue constraints. Specifically, Prime Trust had expenses of approximately $10.5 million in October of last year, while revenue was approximately $3.1 million, resulting in a net loss of more than $7 million. A month later, expenses rose again to $11.1 million, leaving it with a net loss of about $8.4 million. This financial situation puts tremendous pressure on the company.

It is understood that Prime Trust stated in its previous bankruptcy filing that its creditors ranged from 25,000 to 50,000, its estimated liabilities were between US$100 million and US$500 million, and its estimated asset value was US$50 million. to US$100 million. The company's top five unsecured creditors have claims of approximately $105 million, with the largest claim being $55 million.

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