Payward, the dad or mum firm of cryptocurrency trade Kraken, accuses former custody accomplice Etana and its CEO Dion Brandon Russell of misappropriating greater than $25 million in buyer funds, in keeping with a second amended criticism filed Monday in U.S. District Courtroom in Colorado.
The cryptocurrency trade alleges that Etana Custody, which is present process Chapter 11 chapter proceedings, operated a “Ponzi-like” scheme that blended property underneath custody and spent them on working bills and dangerous investments, falsely reporting to clients that they have been unhurt.
The Wyoming-based firm stated it dedicated tons of of tens of millions of {dollars} to Etana over a number of years as a part of a statutory startup partnership. Nevertheless, 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 keeping with the criticism, 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 tons of of billions of {dollars} in quarterly transaction quantity. We did not get right here by rolling. Should you take our cash or defraud our clients, we would like you to know this: We’ll discover you, we’ll sue you, and we cannot cease till justice is served,” Matt Turetsky, Kraken’s head of litigation, stated in an emailed remark.
Etana didn’t reply to a request for remark by the point of publication.
Counterparty threat, or the chance that an organization holding or intermediating a person’s property will be unable to return them, is a vital 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 commonplace, crypto platforms have traditionally operated with unfastened controls, making it tough to confirm whether or not property are absolutely backed.
Excessive-profile failures from FTX to small custodians reveal how rapidly belief can evaporate when that assumption is damaged. Instances just like the Kraken-Etana dispute spotlight the identical core considerations: whether or not buyer funds are really ring-fenced or uncovered to operational and liquidity dangers behind the scenes.
Kraken is a US-based cryptocurrency trade 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 world wide and helps buying and selling of property resembling Bitcoin and Ether (ETH), in addition to fiat on- and off-ramps. We’re recognized for our give attention to 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 property on behalf of exchanges resembling Kraken.
The lawsuit outlines a number of situations of alleged abuse. In a single, Etana allegedly funneled no less than $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 consumer property to finance international trade hedging methods whereas maintaining 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 have been safe and absolutely accounted for.
In 2025, regulatory strain elevated and Colorado officers issued a cease-and-desist order and elevated capital necessities. Etana finally entered liquidation in November 2025 and is at the moment underneath the management of a court-appointed receiver.
Kraken is in search of no less than $25 million in damages, plus treble damages underneath the civil theft claims, in addition to injunctive reduction and legal professional’s charges.
The criticism 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 isn’t the one crypto firm to run into liquidity issues in latest months. Institutional lender Blockfils filed for chapter in March after halting withdrawals, reporting losses of about $75 million and going through a lawsuit alleging misappropriation of buyer funds.
learn extra: Cryptocurrency trade Kraken was the goal of an extortion try, however introduced that no violations have been dedicated and buyer funds weren’t in danger.
