Kraken's Payward Sues Etana Over $25M Custody Fraud

Second Amended Complaint Targets Etana and Its CEO

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, escalating earlier breach-of-contract claims into detailed fraud allegations against custody firm Etana and its chief executive, Dion Brandon Russell. The filing accuses Etana of misappropriating over $25 million in customer reserve funds through what it characterizes as a "Ponzi-like" scheme, in which custodial assets were commingled with the firm's own capital and used to fund risky investments.

Payward says Etana marketed itself as a segregated, bankruptcy-remote custodian while allegedly deploying Kraken's reserves into illiquid, high-risk credit bets. Throughout this period, Etana continued issuing account statements and dashboard updates showing customer balances as secure and fully accounted for, despite internal shortfalls.

Key Allegations at a Glance

• At least $16 million of Kraken's funds were channeled into promissory notes issued by Seabury Trade Capital — notes that later defaulted.
• Etana also used customer assets to fund its own forex strategy while retaining all resulting profits.
• When Kraken requested a roughly $25 million withdrawal in April 2025, Etana stalled with what Payward describes as fabricated reconciliation issues.
• Rather than returning the funds, Etana allegedly used new deposits from other customers to cover prior losses.
• In March 2026, Etana's digital assets became temporarily inaccessible after Amazon Web Services suspended the company's account over unpaid fees.

Regulatory Action and Liquidation

Regulatory pressure mounted in 2025 when Colorado authorities issued a cease-and-desist order and increased capital requirements. Etana ultimately entered liquidation proceedings in November 2025 and is now under the control of a court-appointed receiver. According to that receiver, cash holdings stand at roughly $6.83 million, while liabilities exceed $26 million — the majority of which represents the Kraken claim.

The federal case is currently stayed against the Etana entities but continues against Russell personally, who faces individual liability for fraud and civil theft. The receiver is cooperating with Payward by producing documents and making former staff available for questioning.

What Payward Is Seeking

Payward is seeking at least $25 million in compensatory damages, along with treble damages under Colorado's civil theft statute — a claim that could lift the total recovery request to more than $75 million before fees and interest. The complaint also includes counts of breach of contract, breach of fiduciary duty, and negligent misrepresentation.

Kraken's head of litigation, Matt Turetzky, stated that the exchange "will not stop until justice has been served," emphasizing that the firm has not and will not yield when customer funds are at stake.

Broader Industry Implications

The case highlights a structural problem facing the wider crypto industry: while users regularly entrust exchanges and custodians with their assets, safeguards common in traditional finance — such as fund segregation, deposit insurance, and standardized regulatory oversight — have not been consistently enforced across crypto platforms. Payward's recovery ultimately hinges on the receivership claims process and any available insurance proceeds.

Published by Coinplurk.com