Nevada orders Fortress Trust to cease operations after filing for bankruptcy

Fortress Trust is the latest victim of U.S. regulators’ increased scrutiny of digital asset managers to curb systemic risks.

Nevada regulators have ordered crypto asset management company Fortress Trust to cease operations after revealing signs of bankruptcy and unsafe business practices.

The action was disclosed in an Oct. 24 report by Bloomberg Law, which cited a cease-and-desist order issued by the state’s Department of Financial Institutions.

Regulators warn of mismatch between assets and liabilities

The order against Fortress Trust effectively shuts down its operations. Regulators warned of “significant mismatches between assets and liabilities” and suggested the company was on the verge of collapse. The order bars Fortress from accepting new deposits or transferring assets, mirroring previous actions taken against other failed Nevada-based crypto custodians.

Founded by Scott Purcell, former chief executive of Prime Trust, Fortress serves more than 250,000 customers and was previously the subject of an acquisition offer by Ripple. The bid was later shelved following a $15 million third-party security breach in 2023.

The development mirrors an earlier lawsuit in Nevada against Prime Trust, which lost access to more than $80 million in customer funds and was later placed in receivership. Fortress has emerged from the aftermath, but regulators now claim the company faces similar structural weaknesses.

Storage departments are facing increased scrutiny

The Fortress incident occurred at a time when virtual currency managers across the country were under increased scrutiny. On September 30th, both the Securities and Exchange Commission and the New York City Department of Financial Services released updated custody guidance.

This required clearer bankruptcy protection and disclosures about the risks of smart contracts and blockchain. Smaller custodians may struggle to meet these new standards, accelerating industry consolidation.

At the same time, the SEC’s April Roundtable on Cryptocurrency Custody highlighted how inadequate infrastructure and untested smart contracts continue to expose customers to losses. Regulators debated whether a new framework is needed for “special purpose” crypto broker-dealers to protect assets held outside of traditional banking rails.

Nevada’s wave of crackdowns extends beyond parents. Earlier this month, a federal judge upheld a cease-and-desist order preventing Crypto.com from offering sports betting-related event contracts, reinforcing the state’s tough stance on activities related to digital assets.

The latest Fortress order adds another chapter in Nevada’s tightening grip on the cryptocurrency custody market, demonstrating the regulator’s intent to prevent repeat failures and protect customer assets amid persistent bankruptcy risks.