Payward, the parent company of crypto exchange Kraken, has accused former custody partner Etana and its CEO, Dion Brandon Russell, of misappropriating more than $25 million in client funds, according to a second amended complaint filed in the U.S. District Court in Colorado on Monday.
The crypto exchange alleges that Etana Custody, which is going through Chapter 11 bankruptcy, operated a “Ponzi-like” scheme in which custodial assets were commingled, spent on operating expenses and risky investments, and falsely reported as intact to clients.
The Wyoming-based firm said it entrusted Etana with hundreds of millions of dollars over several years as part of a fiat on-ramp partnership. But when it sought to withdraw roughly $25 million in reserve funds in April 2025, Kraken claims Etana stalled with what it alleges as fabricated reconciliation issues and misleading explanations.
According to the complaint, Etana lacked the funds to meet the withdrawal request and instead relied on new deposits to cover shortfalls.
“Kraken has millions of users and hundreds of billions of dollars in quarterly transaction volume. We did not get here by rolling over. If you take our money or deceive our customers, then know this: we will find you, we will sue you, and we will not stop until justice has been served,” Matt Turetzky, head of litigation at Kraken, said in emailed comments.
Etana didn’t respond to a request for comment by publication time.
Counterparty risk, the danger that a firm holding or facilitating users’ assets can’t return them, has become a defining issue in crypto markets, where users often rely on exchanges, lenders and custodians to safeguard funds.
Unlike traditional finance, where segregation, insurance and oversight are more standardized, crypto platforms have historically operated with looser controls, making it harder to verify whether assets are fully backed.
High-profile failures from FTX to smaller custodians have shown how quickly trust can evaporate when that assumption breaks. Cases like Kraken’s dispute with Etana underscore the same core concern, whether customer funds are truly ring-fenced or exposed to operational and liquidity risks behind the scenes.
Kraken is a U.S.-based crypto exchange operated by Payward Inc., offering spot and derivatives trading alongside custody and staking services. Founded in 2011, the platform serves both retail and institutional clients globally, supporting trading in assets like bitcoin and ether (ETH), as well as fiat on- and off-ramps. It is known for emphasizing security and regulatory compliance across multiple jurisdictions.
Etana is a crypto-focused custody firm that provided fiat on- and off-ramp services and held customer assets on behalf of exchanges like Kraken.
The lawsuit outlines several alleged instances of misuse. In one, Etana purportedly deployed at least $16 million of Kraken-related funds into promissory notes issued by Seabury Trade Capital, which later defaulted. Kraken claims those funds were never returned and may have been diverted to cover company expenses.
In another, Etana is accused of using customer assets to finance a foreign-exchange hedging strategy while retaining any investment income for itself.
Throughout this period, Kraken alleges that Etana continued issuing account statements and dashboard updates that showed customer balances as secure and fully accounted for, despite internal shortfalls.
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.
Kraken is seeking at least $25 million in damages, along with potential treble damages under civil theft claims, plus injunctive relief and attorneys’ fees.
The complaint also targets Russell personally, alleging he exercised near-total control over Etana’s operations and directed the misuse and concealment of funds.
The custodian isn’t the only crypto firm to run into liquidity trouble in recent months. Institutional lender Blockfills filed for bankruptcy in March after halting withdrawals, reporting roughly $75 million in losses and facing a lawsuit alleging misuse of customer funds.
Read more: Crypto exchange Kraken targeted in extortion attempt but says there was no breach and no client funds at risk
