Payward, the guardian 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 accordance with a second amended criticism filed Monday in U.S. District Court docket in Colorado.
The cryptocurrency trade alleges that Etana Custody, which is present process Chapter 11 chapter proceedings, operated a “Ponzi-like” scheme that blended belongings beneath custody and spent them on working bills and dangerous investments, falsely reporting to clients that they had been unhurt.
The Wyoming-based firm mentioned it dedicated lots of of thousands and thousands 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.
Based on the criticism, Etana lacked the funds to fulfill withdrawal requests and relied on new deposits to make up the shortfall.
“Kraken has thousands and thousands of customers and lots of of billions of {dollars} in quarterly transaction quantity. We did not get right here by rolling. In case 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 can’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 threat, or the danger that an organization holding or intermediating a consumer’s belongings will be unable to return them, is a important difficulty within the cryptocurrency market, the place customers typically 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 troublesome 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 issues: 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 trade operated by Payward Inc. that gives spot and derivatives buying and selling together with custody and staking providers. Based in 2011, the platform serves each retail and institutional purchasers world wide and helps buying and selling of belongings reminiscent of Bitcoin and Ether (ETH), in addition to fiat on- and off-ramps. We’re identified for our concentrate on safety and regulatory compliance throughout a number of jurisdictions.
Etana was a cryptocurrency-focused custody firm that offered fiat on-ramp and off-ramp providers and saved buyer belongings on behalf of exchanges reminiscent of Kraken.
The lawsuit outlines a number of cases 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 should have been diverted to cowl firm bills.
In a separate case, Etana is accused of utilizing shopper belongings 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 difficulty 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 searching for no less than $25 million in damages, plus treble damages beneath the civil theft claims, in addition to injunctive aid and lawyer’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 shouldn’t be 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 dealing with a lawsuit alleging misappropriation of buyer funds.
learn extra: Cryptocurrency trade Kraken was the goal of an extortion try, however introduced that no violations had been dedicated and buyer funds weren’t in danger.
