Zerohash Trust Bid Returned by OCC Amid Compliance Lawsuit and Valuation Hopes

Woofun AI reports that Zerohash, the crypto infrastructure provider serving high-profile traditional financial entities including Morgan Stanley's ETrade, failed to secure a U.S. trust bank charter from the Office of the Comptroller of the Currency (OCC). The Chicago-based firm's application was quietly returned last month, marking a distinct departure from the recent wave of provisional charters granted to digital asset firms. This administrative rejection leaves Zerohash in a singular position, excluded from the OCC's recent abundance of approvals for trust banks seeking to handle digital assets, despite its deep integration with major Wall Street players.

The regulatory setback stems from the OCC's determination that the application was materially deficient, a classification that triggers an administrative return rather than a substantive denial. According to OCC policy, this return allows the company to refile this month, effectively resetting the clock on the process. The firm stated that this approach was taken in coordination with the OCC and does not constitute a substantive decision on the merits of the application. Consequently, Zerohash's current operations continue under existing regulatory approvals, though the path to a federal charter remains obstructed by the need to address the identified deficiencies.

A contradiction emerged between the company's public statements and its internal job listings and executive titles. In a Wednesday statement, Zerohash maintained that the return was merely administrative.

However, the company had recently advertised roles for a national trust officer and a chief operating officer at a 'Zerohash National Trust Bank,' indicating a pending charter application before the OCC.

Furthermore, Zerohash Co-president Stephen Gardner's LinkedIn page lists him as CEO of the 'zerohash national trust bank (pending),' suggesting an expectation of imminent approval that the OCC's action has now delayed.

Zerohash indicated that the initial OCC application may have been overly ambitious in its scope, covering a wide range of digital asset and fiduciary services. The firm plans to pivot to a sequenced approach, starting with an application for a more focused approval of national trust activities aligned with its intended rollout timeline. This strategic adjustment aims to facilitate a swift review of the resubmission, avoiding the broad scrutiny that may have contributed to the initial return. The company believes this narrower focus will better align with regulatory expectations and accelerate the path to a federal charter.

Woofun AI data shows that the original effort in March joined a rush of firms hoping to be among the trust-bank provisional approvals flooding the U.S. with new crypto-oriented banks. This surge was amplified by the Guiding and Establishing National Innovation for U.S. Stablecoins Act, which formally established a legal structure for U.S. stablecoin issuers.

However, Zerohash's application was sent back on July 17, according to OCC records, which do not reveal the specific cause. Unlike denials received by Wise and Bunq, a return does not come with a detailed explanation, leaving the firm to speculate on the precise regulatory concerns.

The OCC's decision-making criteria were clarified just a month before returning Zerohash's effort. The regulator explained that it may return a filing if it lacks necessary information on the company's finances or officers.

Additionally, the OCC may return a filing as materially deficient if, after an additional information request, the responses do not sufficiently address the statutory or regulatory criteria. This policy was highlighted by the Independent Community Bankers of America in April, raising questions about the transparency and consistency of the OCC's review process for crypto-related applications.

Industry pace concerns were raised by community bankers, who noted that the OCC had conditionally approved or received applications from Circle Internet Group, Ripple, Paxos Trust, BitGo, Fidelity Digital Assets, Crypto.com, Payoneer (PAYO), and now Zerohash. The letter argued that this pace — eleven filings or approvals in under one hundred days in some windows — precludes deliberate, transparent policymaking. This criticism underscores the tension between the rapid expansion of crypto infrastructure firms and the traditional banking sector's call for more rigorous and measured regulatory oversight.

Financial valuation and acquisition talks have also been part of Zerohash's recent narrative. In May, sources told CoinDesk that the firm was pursuing further investment at a potential valuation above $1.5 billion, while its application to be a federally regulated trust bank was still active. The company, which had been in acquisition talks with Mastercard that fell through, powers crypto infrastructure for BlackRock, Franklin Templeton, Stripe, Interactive Brokers, and DraftKings. It is already a state-chartered trust bank, and a person familiar with its operation said that its business with ETrade does not depend on getting a federal charter.

Internal legal battles and compliance allegations have complicated Zerohash's regulatory standing. Edgar Guerra, the former chief compliance officer, filed a California lawsuit claiming he was fired to mask compliance issues he had uncovered. Guerra, a former regulator at the Federal Reserve, indicated that he and his staff internally identified more than 200 significant compliance gaps, including in the firm's money-laundering controls. Some of these shortcomings had previously been noted and insufficiently remedied, he said. The company's attempts to push the case into arbitration were preliminarily rejected, and it remains unclear whether OCC officials were aware of these claims.

The leadership's commitment to compliance remains a point of contention. In 2022, when Guerra was six months into the job that he would later be fired from, he told an interviewer that the company was 'trying to comply' with a couple of dozen compliance professionals at a firm of about 150 employees. He stated that he had been fortunate to be brought on by a leadership that was 'really committed to making sure that compliance is a competitive advantage.' Zerohash declined to comment on the case, and a lawyer for Guerra did not immediately respond to a request for comment, leaving the future of the firm's regulatory and legal standing uncertain.