Payward, the mother or father firm of cryptocurrency alternate Kraken, accuses former custody associate Etana and its CEO Dion Brandon Russell of misappropriating greater than $25 million in buyer funds, based on a second amended grievance filed Monday in U.S. District Court docket in Colorado.
The cryptocurrency alternate alleges that Etana Custody, which is present process Chapter 11 chapter proceedings, operated a “Ponzi-like” scheme that combined belongings beneath custody and spent them on working bills and dangerous investments, falsely reporting to prospects that they had been unhurt.
The Wyoming-based firm mentioned it dedicated a whole lot of tens of millions of {dollars} to Etana over a number of years as a part of a statutory startup partnership. Nonetheless, Kraken claims that Etana was stalled by fabricating and deceptive the settlement points when it tried to withdraw roughly $25 million in reserves in April 2025.
In accordance with the grievance, Etana lacked the funds to satisfy withdrawal requests and relied on new deposits to make up the shortfall.
“Kraken has tens of millions of customers and a whole lot of billions of {dollars} in quarterly transaction quantity. We didn't get right here by rolling. For those who take our cash or defraud our prospects, we would like you to know this: We'll discover you, we'll sue you, and we gained't cease till justice is served,” Matt Turetsky, Kraken's head of litigation, mentioned in an emailed remark.
Etana didn’t reply to a request for remark by the point of publication.
Counterparty danger, or the chance that an organization holding or intermediating a consumer's belongings will be unable to return them, is a important challenge within the cryptocurrency market, the place customers usually depend on exchanges, lenders and custodians to guard their funds.
Not like conventional finance, the place segregation, insurance coverage, and oversight are extra normal, crypto platforms have traditionally operated with unfastened controls, making it tough to confirm whether or not belongings are totally backed.
Excessive-profile failures from FTX to small custodians reveal how rapidly belief can evaporate when that assumption is damaged. Incidents just like the Kraken-Etana dispute spotlight the identical core considerations: whether or not buyer funds are actually ring-fenced or uncovered to operational and liquidity dangers behind the scenes.
Kraken is a US-based cryptocurrency alternate operated by Payward Inc. that provides spot and derivatives buying and selling together with custody and staking companies. Based in 2011, the platform serves each retail and institutional shoppers all over the world and helps buying and selling of belongings resembling Bitcoin and Ether (ETH), in addition to fiat on- and off-ramps. We’re recognized for our concentrate on safety and regulatory compliance throughout a number of jurisdictions.
Etana was a cryptocurrency-focused custody firm that supplied fiat on-ramp and off-ramp companies and saved buyer belongings on behalf of exchanges resembling Kraken.
The lawsuit outlines a number of situations of alleged abuse. In a single, Etana allegedly funneled at the least $16 million in Kraken-related funds into promissory notes issued by Seabury Commerce Capital, which subsequently defaulted on the debt. Kraken claims these funds weren’t returned and will have been diverted to cowl firm bills.
In a separate case, Etana is accused of utilizing shopper belongings to finance overseas alternate hedging methods whereas protecting funding earnings for itself.
All through this era, Kraken claimed that regardless of inside shortfalls, Etana continued to challenge account statements and dashboard updates displaying that buyer balances had been safe and totally accounted for.
In 2025, regulatory stress elevated and Colorado officers issued a cease-and-desist order and elevated capital necessities. Etana finally entered liquidation in November 2025 and is presently beneath the management of a court-appointed receiver.
Kraken is in search of at the least $25 million in damages, plus treble damages beneath the civil theft claims, in addition to injunctive reduction and lawyer's charges.
The grievance additionally targets Mr. Russell personally, alleging that he had near-total management over Etana's operations and directed the misuse and concealment of Etana's funds.
Custodian will not be the one crypto firm to run into liquidity issues in current months. Institutional lender Blockfils filed for chapter in March after halting withdrawals, reporting losses of about $75 million and dealing with a lawsuit alleging misappropriation of buyer funds.
learn extra: Cryptocurrency alternate Kraken was the goal of an extortion try, however introduced that no violations had been dedicated and buyer funds weren’t in danger.
