Summary
- Kraken’s parent company, Payward, has filed a second amended complaint in Colorado federal court accusing former custody partner Etana Custody and its CEO of misappropriating more than $25 million in client funds.
- The suit alleges Etana ran a “Ponzi scheme” by commingling custodial assets with its own, funding expenses and risky bets, and papering over a growing hole with falsified account statements.
- Colorado regulators have already hit Etana with a cease-and-desist order; the firm entered liquidation in November 2025 and is now controlled by a court‑appointed receiver.
In a second amended complaint submitted to the U.S. District Court for the District of Colorado, Payward Interactive and Payward Trading — doing business as Kraken — accuse Etana Custody Limited, Etana Custody Inc., CEO Dion Brandon Russell, and others of misappropriating over $25 million in Kraken customer funds.
Payward details alleged funding gap and “Ponzi-like” structure
Payward alleges that Etana “operated a Ponzi scheme,” mixing assets it was supposed to hold in custody for Kraken with its own money to pay operating expenses and make “high-risk investments,” then issuing “false account reports” that showed full balances even as a funding gap widened.
According to the complaint, problems came to a head in April 2025 when Kraken attempted to withdraw roughly $25 million in reserve funds.
Etana allegedly stalled the payout by citing “reconciliation issues” that Payward calls fictitious, all while relying on “new deposits from other clients” to plug the hole — behavior Kraken says is classic Ponzi‑like recycling of incoming funds to meet existing obligations.
The filing claims at least $16 million of the shortfall was tied to a promissory note issued by Seabury Trade Capital, which later defaulted, leaving Etana unable to meet withdrawal requests without fresh inflows.
Regulatory collapse and Kraken’s damages claim
Etana’s troubles did not stop at private litigation.
Colorado regulators subsequently issued a cease-and-desist order against Etana Custody Inc., and on November 7, 2025, a Denver County court appointed a liquidator/receiver to take control of the company’s assets under a statutory liquidation order.
Case updates on the receivership site confirm that Etana’s operations are effectively frozen, with claims from customers and counterparties handled through a court-supervised process rather than the firm’s management.
Payward is seeking at least $25 million in compensatory damages — corresponding to the amount it says Etana failed to return — plus treble damages under Colorado’s civil theft statute, which could push the total sought to more than $75 million before fees and interest.
The suit also alleges 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 credit bets.
In a recent crypto.news report, the case was highlighted as a test of how courts will treat custodians that commingle client funds in the crypto era, especially when those custodians are already under state liquidation orders.
Another crypto.news analysis focused on the Etana receivership process itself, noting that Kraken and other institutional customers now have to queue alongside retail clients and other creditors to recover what they can from the collapsed custodian.
A separate crypto.news overview emphasized that Payward’s amended complaint escalates the dispute beyond contract claims into allegations of a full‑blown “Ponzi scheme,” potentially increasing regulatory and law‑enforcement scrutiny of similar custody arrangements.
