Nevada Regulators Issue Cease-and-Desist to Crypto Custodian Fortress Trust Amid Insolvency

Executive Summary

Nevada regulators have issued a cease-and-desist order against Fortress Trust, operating as Elemental Financial Technologies Inc., citing the company's imminent bankruptcy and insufficient liquidity to meet customer obligations. The order, effective October 22, underscores the ongoing regulatory scrutiny and inherent risks within the digital asset custody sector. This development may prompt increased examination of other centralized custodians and influence broader market sentiment regarding digital asset safety.

The Event in Detail

The Nevada Financial Institutions Division officially issued a cease-and-desist order against Fortress Trust on October 22, 2025. The directive mandates an immediate cessation of activities violating Chapter 669 of the Nevada Revised Statutes (NRS) and the Nevada Administrative Code (NAC), which govern trust companies in the state. Commissioner Sandy O'Laughlin signed the order, explicitly stating that Fortress's liquidity position is "wholly inadequate to meet customer obligations."

Prior to the order, on or about October 7, 2025, Fortress Trust had informed the Division of its impending insolvency and inability to sustain operations or process customer withdrawals. Furthermore, a potential capital infusion through a third-party purchase or bridge financing, aimed at addressing the insolvency concerns, failed to materialize by October 21, 2025. Investigations also revealed that the company was operating with only two board members, falling short of the required five. The order grants Fortress Trust a 30-day window to request a hearing, after which the order will become final if no such petition is received.

Market Implications

The regulatory action against Fortress Trust introduces heightened volatility and uncertainty within the digital asset market, particularly for centralized custodians. The reported "significant mismatch between assets and liabilities" and the inability to meet customer obligations can erode trust in third-party custody solutions. This situation may lead to a reassessment of counterparty risk among institutional and retail investors, potentially accelerating a shift towards self-custody or more transparent, regulated custodial frameworks. Immediate disruptions are expected for Fortress Trust clients, with potential financial losses for users of the affected services. This event is likely to increase regulatory pressure on other crypto custodians, demanding more rigorous financial reporting and liquidity assurances.

Broader Context

This regulatory intervention occurs amidst significant efforts in 2025 to clarify the regulatory landscape for crypto custodians. The Office of the Comptroller of the Currency (OCC) has affirmed that national banks can offer crypto custody services, and the repeal of the SEC’s Staff Accounting Bulletin 121 (SAB 121) aimed to remove barriers for custodians. Additionally, the withdrawal of 2019 broker-dealer custody guidance by the SEC and FINRA expanded the scope for qualified custodians, and the GENIUS Act established a framework for payment stablecoins. These collective actions were intended to foster regulatory clarity and innovation. However, the insolvency of Fortress Trust underscores that even with evolving regulatory frameworks, operational and financial stability remains paramount. This incident highlights the critical need for custodians to adhere strictly to regulatory requirements for reserves, audits, and disclosures, and serves as a stark reminder of the inherent risks in inadequately managed digital asset custody providers, irrespective of broader market regulatory developments.