Kraken Parent Accuses Etana Of Misusing $25m In Client Funds

Payward, the parent company of crypto exchange Kraken, has filed a second amended complaint in the U.S. District Court for the District of Colorado, accusing former custody partner Etana Custody and its CEO, Dion Brandon Russell, of misappropriating more than $25 million in client funds.

A Ponzi-Like Structure, Not Simple Mismanagement

The filing makes clear that Kraken does not view the missing funds as the result of poor recordkeeping or operational error. Instead, Payward alleges that Etana operated what the complaint describes as a "Ponzi-like" scheme, in which custodial assets were commingled with company funds, spent on operating expenses and risky investments, and falsely reported as intact to clients through fabricated account statements and dashboard updates.

Kraken had maintained a multi-year fiat on-ramp partnership with Etana, entrusting the firm with hundreds of millions of dollars in client assets. When Payward attempted to withdraw roughly $25 million in reserve funds in April 2025, Etana stalled, citing reconciliation issues that Kraken alleges were fictitious. According to the complaint, Etana lacked the liquidity to fulfill the request and was relying on new customer deposits to cover existing shortfalls — the defining hallmark of a Ponzi-style operation.

Among the specific allegations, Payward claims at least $16 million of Kraken-related funds were channelled into promissory notes issued by Seabury Trade Capital, which subsequently defaulted. A separate allegation accuses Etana of using customer assets to finance a foreign-exchange hedging strategy, while retaining any gains for itself.

Liquidation, Legal Stakes, and What Comes Next

The dispute has a significant regulatory backdrop. Colorado authorities issued a cease-and-desist order against Etana and raised capital requirements in 2025. By November 2025, the Colorado Banking Board had placed Etana into statutory liquidation after the custodian failed to meet required capital levels, with a court-appointed receiver now overseeing its assets.

The financial picture inside Etana is stark. According to court filings, cash holdings stand at roughly $6.83 million against liabilities exceeding $26 million — the bulk of which represents Kraken's claim. The federal case against Etana as an entity is currently stayed, but proceedings against Russell personally continue, with Payward pursuing him for fraud and civil theft.

Payward is seeking at least $25 million in compensatory damages. Under Colorado's civil theft statute, the company is also pursuing treble damages, which could push the total claim to more than $75 million before fees and interest. The amended complaint also adds counts of breach of contract, breach of fiduciary duty, fraud, and negligent misrepresentation, arguing that Etana marketed itself as a segregated, bankruptcy-remote custodian while secretly deploying Kraken's reserves into illiquid, high-risk positions.

Etana has not responded publicly to the allegations. The defendants' legal representatives have disputed the claims in court filings. Payward's recovery will largely depend on the receivership claims process and any available insurance proceeds.

Sources:
CoinDesk – Kraken's Parent Company Payward Alleges $25 Million Crypto Custody Fraud
The Block – Kraken's Parent Company Alleges Custodian Etana Misappropriated $25 Million
Crypto.news – Kraken Parent Sues Ex-Custodian Etana Over Alleged $25M Ponzi Scheme

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