Nevada regulators shut down Fortress Trust on Oct. 22, citing insolvency that left the custodian holding roughly $200,000 in cash against $8 million owed in fiat and $4 million in crypto.
The cease-and-desist order marked the second major Nevada trust-company collapse in two years, following Prime Trust’s entry into receivership in June 2023. Both firms shared the same founder.
The pattern forces exchanges, fintechs, and investors to confront where customer assets actually sit and which regulatory frameworks prevent failures from wiping out user funds.
Nevada’s Financial Institutions Division described Fortress’s condition as “unsafe and unsound,” barred deposits and asset transfers. It noted that the custodian could not produce financials for July through September or basic reconciliations.
Fortress, which rebranded as Elemental Financial Technologies after a 2023 vendor breach costing $12 million to $15 million, served more than 250,000 clients.
Ripple withdrew its acquisition bid days after the breach was disclosed. The failures occurred under Nevada’s retail trust-company charter, which requires statutory segregation but has led to enforcement actions spotlighting governance breakdowns and gaps in exam frequency.
Four custody charters and their segregation rules
US institutions custody digital assets under four frameworks: Nevada retail trusts, New York limited-purpose trusts and BitLicense custodians, OCC national trust banks, and Wyoming SPDIs.
Nevada’s NRS Chapter 669 mandates trust-fund segregation and permits omnibus titling if records identify each beneficial owner, but exam frequency, set as “often as necessary,” has varied in practice.
New York’s 2023 DFS custody guidance requires treating customer assets as customer property, prohibits custodians from using customer assets for anything beyond safekeeping, and requires audit trails that reconcile omnibus wallets to individual accounts.
Sub-custody needs prior DFS approval. BitLicense holders face intensive risk-based exams funded by DFS assessments, creating frequent touch
Go to Source to See Full Article
Author: Gino Matos
