Nevada regulators have directed crypto custodian Fortress Trust to suspend operations after uncovering signs of insolvency and unsafe business practices. Bloomberg Law reported on Oct. 24 that the state’s Financial Institutions Division issued a cease-and-desist order against the company.
Regulator cites asset-liability mismatch
The order effectively halts Fortress Trust’s operations, citing a “significant mismatch between assets and liabilities,” which suggests the firm was nearing collapse. The directive prohibits Fortress from accepting new deposits or transferring assets, echoing similar measures previously taken against other Nevada-based crypto custodians.
Founded by Scott Purcell, the former CEO of Prime Trust, Fortress served over 250,000 clients and was once considered for acquisition by Ripple. That deal was shelved following a $15 million third-party security breach in 2023.
This situation mirrors Nevada’s earlier action against Prime Trust, which lost access to more than $80 million in customer funds and was subsequently placed into receivership. Fortress had initially emerged from that fallout, but regulators now claim it faces comparable structural vulnerabilities.
Custody sector under increasing scrutiny
The Fortress case comes as crypto custodians across the U.S. face tighter oversight. On Sept. 30, the SEC and New York Department of Financial Services issued updated custody guidance, requiring clearer insolvency protections and disclosures related to smart contract and blockchain risks. Smaller custodians may struggle to meet these standards, potentially accelerating industry consolidation.
In addition, the SEC’s April roundtable on crypto custody highlighted how insufficient infrastructure and untested smart contracts continue to put customer assets at risk, prompting discussions on whether new frameworks are needed for “special purpose” crypto broker-dealers managing assets outside traditional banking systems.
Nevada’s enforcement has also extended beyond custodians. Earlier this month, a federal judge upheld a cease-and-desist order preventing Crypto.com from offering sports betting-related event contracts, underscoring the state’s strict approach to digital asset activities.
The latest order against Fortress Trust signals Nevada’s continued crackdown on the crypto custody sector, as regulators aim to prevent repeat collapses and safeguard client assets amid persistent insolvency risks.
