Nevada regulators have halted Fortress Trust’s operations after discovering severe liquidity shortfalls threatening client assets. The Financial Institutions Division (FID) issued a cease-and-desist order on October 22, citing the custodian’s “unsafe and unsound” practices.
Fortress, recently rebranded as Elemental Financial Technologies, faces accusations of insolvency and failing to match its assets with client liabilities. As per a Bloomberg report, the FID revealed that Fortress cannot meet customer withdrawals and owes millions to clients. Regulators said the firm also failed to provide crucial financial reports, including reconciliations and monthly statements.
Fortress’ “liquidity position is wholly inadequate to meet customer obligations,” the order read. Consequently, the agency warned that customer funds face “immediate risk,” affecting more than 250,000 users, including crypto firms and digital asset retirement accounts.
Fortress Faces Regulatory Clampdown
The cease-and-desist order stops Fortress from accepting deposits or processing withdrawals. Besides, it bans the company from offering custody or money transmission services. The FID also required Fortress to preserve its records and warned of civil penalties of up to $10,000 per violation. Moreover, regulators are investigating possible fraud and mismanagement.
Fortress launched in 2021 under Scott Purcell, who also founded Prime Trust, the custodian that collapsed in 2023 and stranded $80 million in assets. The new action mirrors that failure, with the FID calling it a textbook case of custodial mismanagement. The firm’s rebranding earlier this year failed to resolve its balance sheet problems. Fortress also ignored earlier warnings from regulators and failed to share audited financial reports, which made officials even more concerned.
Ripple Connection and Industry Impact
Fortress previously worked with Ripple Labs and almost got acquired by the company for $15 million in 2023. However, Ripple walked away after a security breach caused $15 million in losses. Since then, regulators in states like Connecticut and Maine have been watching Fortress more closely. Now, Nevada’s latest action adds even more pressure to the already struggling crypto custody industry.
Nevada’s action against Fortress highlights how fragile some crypto custodians remain. It also shows regulators are tightening control to prevent more investor losses.