The crypto custodian BitGo announced on Thursday it was terminating a planned acquisition of Prime Trust, a rival firm based in Nevada. Custodians safeguard digital assets on behalf of individuals and companies.
In an interview with Fortune, BitGo CEO Mike Belshe said that after signing a letter of intent with Prime Trust two weeks ago and conducting a due diligence process, it became clear that Prime Trust did not have the necessary financials to complete the deal.
“Investors were not realistic about the state of their business two weeks ago,” Belshe said. “They just don’t have the finances they need to complete the terms we had asked for in the term sheet.”
Prime Trust has experienced a stunning collapse since raising a $100 million Series B in June of 2022 with backers including Kraken’s venture arm. Prime Trust’s prospects declined as the bear market worsened, laying off one-third of its staff in January.
After the Securities and Exchange Commission revealed close financial ties between Prime Trust and Binance in the agency’s lawsuit against the exchange on Monday, rumors swirled of bankruptcy concerns for the embattled custodian. Prime Trust did not immediately respond to a request for comment.
An acquisition by BitGo would have represented a lifeline for Prime Trust, although Belshe said it needed to find out in the due diligence process if the condition of the business was good enough for the purchase to make sense. Prime Trust has been losing key customers over the past few weeks, including Swan Bitcoin and Strike. “We’re not a charity,” Belshe said. He declined to provide more specifics on what was discovered while performing due diligence.
Prime Trust had blown through its funding, and a new management team that took over in November couldn’t right the ship. Following a tweet from BitGo that it was terminating the acquisition on Thursday, Prime Trust customers began informing their users that its Nevada regulator had issued a cease and desist to the troubled custodian, causing it to halt all withdrawals of both fiat and digital currencies. The decision from the Nevada Financial Institutions Division came on Wednesday night.
“The state regulator asked them to freeze their assets because they need to go in and sort things out,” Belshe told Fortune. “That happens when something is wrong.”
The looming question is how the failed acquisition—and asset freeze—will affect Prime Trust customers. “It’s probably going to be a struggle for them,” said Belshe, expressing that he wished they had been able to start the acquisition process before the situation deteriorated.
Belshe said BitGo’s decision was unrelated to Prime Trust’s relationship with TrueUSD, a stablecoin associated with the controversial crypto entrepreneur Justin Sun, which Prime Trust stopped minting earlier in June.
