Zerohash’s U.S. Trust Bank Ambitions Stall Despite Morgan Stanley Partnership

Zerohash, the crypto infrastructure firm supporting major financial institutions such as Morgan Stanley’s E*Trade, is set to refile its application for a U.S. national trust bank charter after the Office of the Comptroller of the Currency returned its original submission.

The OCC sent the Chicago-based company’s application back last month, leaving Zerohash out of the growing list of firms that have recently received provisional trust-bank approvals for digital-asset activities.

The action was not a formal rejection. Instead, the OCC returned the filing under a process used when an application is deemed materially deficient. Zerohash said the decision was administrative and made in coordination with the regulator, enabling the company to submit a revised application this month.

Zerohash said the return does not represent a decision on the merits of its proposal and will not disrupt its existing operations, which remain covered by its current regulatory approvals.

The company had recently advertised positions such as national trust officer and chief operating officer for a proposed entity called “Zerohash National Trust Bank.” The job postings described its OCC charter application as pending, while Co-President Stephen Gardner’s LinkedIn profile identified him as CEO of the planned bank.

Zerohash said the original application may have covered too broad a range of services. Its first proposal included various digital-asset and fiduciary activities, while the new application will adopt a more measured, step-by-step approach.

The revised filing is expected to focus initially on a narrower group of national trust activities that align with Zerohash’s planned rollout. The company said it is seeking a fast review of the new submission.

OCC Sends Zerohash Application Back

Zerohash filed its original application in March as a wave of crypto companies pursued OCC trust-bank approvals. The push gained momentum after the U.S. established a regulatory framework for stablecoin issuers through the Guiding and Establishing National Innovation for U.S. Stablecoins Act.

OCC records show that Zerohash’s application was returned on July 17, although they do not provide details about what prompted the decision.

A returned application differs from a formal denial because it generally does not include a detailed explanation. Zerohash also did not voluntarily withdraw its filing and did not immediately disclose that the application had been returned.

The OCC did not immediately respond to requests for comment, while Morgan Stanley declined to comment.

The regulator had recently clarified that it may return applications lacking critical information about an applicant’s financial condition, executives or other required matters. A filing can also be returned when an applicant fails to adequately respond to additional information requests during the review process.

Zerohash Faces Broader Regulatory Scrutiny

The Independent Community Bankers of America objected to Zerohash’s application in April, raising concerns about the rapid expansion of crypto-related trust-bank applications and conditional approvals.

The group argued that the pace could make it harder for regulators to develop policy through a deliberate and transparent process. Its filing referenced applications or approvals involving Circle, Ripple, Paxos, BitGo, Fidelity Digital Assets, Crypto.com, Payoneer and Zerohash.

Zerohash was also reportedly exploring additional investment earlier this year at a potential valuation above $1.5 billion, when its federal charter application was still active.

The company provides crypto infrastructure to major businesses including BlackRock, Franklin Templeton, Stripe, Interactive Brokers and DraftKings. It already holds a state trust-bank charter, and a person familiar with the company said its E*Trade business does not depend on obtaining federal approval.

Former Compliance Officer Files Lawsuit

Zerohash is separately involved in litigation with former Chief Compliance Officer Edgar Guerra, who alleges he was fired after raising concerns about compliance practices.

Guerra, a former Federal Reserve regulator, claims he and his team identified more than 200 significant compliance shortcomings, including weaknesses in anti-money-laundering controls. He further alleges that some of those issues had been identified previously but were not adequately resolved.

It is unclear whether the OCC was aware of those allegations or whether they played any role in the regulator’s decision to return the charter application. The legal dispute remains unresolved, and Zerohash’s effort to move the case to arbitration has encountered an initial setback.

Zerohash declined to comment on the lawsuit, while Guerra’s lawyer did not immediately respond to requests for comment.

In a 2022 interview, Guerra said Zerohash had about two dozen compliance professionals supporting a workforce of roughly 150 employees. He also described the company’s leadership as committed to making compliance a competitive advantage.