Crypto custody firm Prime Trust has "a shortfall in customer funds" and was unable to meet all withdrawal requests this month, the Nevada Department of Business and Industry said Thursday.

The Department's Financial Institutions Division (FID), which oversees state-regulated trust companies,ordered Prime Trust to cease all activitieswhich violate Nevada regulations, alleging that the company's "overall financial condition ... has considerably deteriorated to a critically deficient level."

Prime Trust is "operating at a substantial deficit" or may even be insolvent, the order said.

"On or about June 21, 2023, Respondent 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 order said. "Additionally, Respondent failed to safeguard assets under its custody and is unable to meet all customer withdrawals."

Prime Trust may not be able to operate in sound manner if it were to continue, the regulator claimed, going on to say it breached its fiduciary duties.

Prime Trust reported more than negative $12 million in stockholders' equity position at the end of March 2023, the order said.

Prime Trust can request a hearing within 30 days of the order. If it does not file for one, the cease-and-desist order will be deemed final.

The order was published on the Nevada regulator's website hours after fellow crypto companyBitGo announced it was terminatingits potential acquisition of Prime Trust.

A number of companies announced shortly after the deal's cancellation that Prime Trust had halted all fiat deposits in response to Nevada's order, though they did not share the actual details of the order.

Prime Trust interim CEO Jor Law did not immediately return a request for comment.

In a statement shared after the publication of this article, a Nevada FID spokesperson said the regulator issued the cease-and-desist on June 21, blocking Prime Trust "from accepting fiat and cryptocurrency from existing and new clients for custody purposes."

"The Nevada Financial Institutions Division ('NFID') was actively monitoring the solvency of Prime Trust, LLC ('Prime') in anticipation of a potential acquisition or merger," the spokesperson said. "Ultimately, Prime failed to safeguard assets under its custody and cannot meet all client withdrawals. As such, Prime has breached its fiduciary duties to its clients, in violation of Nevada trust laws. NFID’s primary objective is to preserve any enterprise value remaining in Prime for the benefit of Prime’s clients."