Banq—a Nevada-based crypto payments and savings platform—filed for Chapter 11 bankruptcy protection on Tuesday, according to court documents.
The filing arrives days after crypto custodian BitGo signed a letter of intent to acquire Banq's parent company, Prime Trust, amid swirling rumors that the latter firm was facing insolvency.
In its written reorganization plan, attorneys representing Banq claimed that Banq's troubles began back in 2021 because of mismanagement under former CEO Scott Purcell.
After Purcell resigned alongside two other executives late that year, the company's board of directors discovered that Purcell and the others had secretly transferred large amounts of company data and assets to their newly founded company, Fortress NFT Group. This included "the vast majority of [Banq] employees, trade secrets, intellectual property, technology, business opportunities, and equipment."
Banq later faced legal challenges from N9 Advisors related to a $3 million unsecured promissory note that Purcell presented to N9 in July 2021. Attorneys believe N9 is a "substantial investor in Fortress."
"As a result of the Purcell defendants' misappropriation of the debtor's assets and the expenses associated with defending against the claims of N9 Advisors in the Florida Action, the debtor was left with insufficient resources to resume its business operations," wrote attorneys.
In other bankruptcy documents, Banq listed $17.72 million in assets and $5.4 million of liabilities.
Scott Purcell is also a former CEO of Banq parent Prime Trust, and affiliated companies—including Binance.US, Abra, and Swan—faced withdrawal delays last week. Redemptions on TrueUSD stablecoins through the custodian were similarly forced to a halt.
Swan confirmed late last month that it had transferred all client assets to both BitGo Trust and Fortress Trust. Later, Strike CEO Jack Mallers—who previously touted Prime Trust as a partner—announced last week that Strike had moved its infrastructure in-house to provide custody for customers' Bitcoin and USD.
The BitGo CEO explained during a Twitter Spaces last Friday that his company likely wouldn't have gone forward with an acquisition deal if Prime Trust was financially healthy.
"They basically spent too much money," he said, adding that the company's "monthly burn going through last summer was just garbage."
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Source: Decrypt.co
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