U.S. regulators are increasing oversight on digital asset custodians to curb systemic risks, with Fortress Trust being the latest victim.
Summary
- Nevada ordered Fortress Trust to cease operations over solvency risks.
- The case mirrors the 2023 Prime Trust collapse involving the same founder.
- Regulators tighten crypto custody rules, raising pressure on small firms.
Nevada regulators have ordered crypto custodian Fortress Trust to stop operating after uncovering signs of insolvency and unsafe business practices.
The action was disclosed in an Oct. 24 report by Bloomberg Law, citing a cease-and-desist order issued by the state’s Financial Institutions Division.
Regulator flags asset-liability mismatch
The order against Fortress Trust effectively halts its operations. The regulator flagged a “significant mismatch between assets and liabilities,” suggesting the company was on the brink of collapse. The order bars Fortress from accepting new deposits or transferring assets, mirroring prior actions taken against other failed Nevada-based crypto custodians.
Founded by Scott Purcell, the former chief executive officer of Prime Trust, Fortress served over 250,000 clients and was once pursued by Ripple in an acquisition bid. That bid was later shelved after a $15 million third-party security breach in 2023.
This development echoes Nevada’s earlier case against Prime Trust, which lost access to more than $80 million in customer funds and was later placed into receivership. Fortress had emerged from that fallout, but regulators now allege it faces similar structural weaknesses.
Custody sector faces rising scrutiny
The Fortress case comes amid tighter scrutiny of crypto custodians nationwide. On Sept. 30, both the Securities and Exchange Commission and New York’s Department of Financial Services issued updated custody guidance.
This required clearer insolvency protections and disclosures around smart contract and blockchain risks. Smaller custodians may struggle to meet these new standards, accelerating industry consolidation.
At the same time, the SEC’s April roundtable on crypto custody underscored how insufficient infrastructure and untested smart contracts continue to expose customers to loss. Regulators debated whether new frameworks are needed for “special purpose” crypto broker-dealers to safeguard assets held outside traditional banking rails.
Nevada’s enforcement wave has also extended beyond custodians. Earlier this month, a federal judge upheld a cease-and-desist order blocking Crypto.com from offering sports betting-related event contracts, reinforcing the state’s tough stance on digital asset-linked activities.
The latest Fortress order adds another chapter to Nevada’s tightening grip on the crypto custody market, signaling regulators’ intent to prevent repeat collapses and protect client assets amid persistent insolvency risks.
