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 another amended complaint filed in U.S. District Court in Colorado on Monday.
The crypto exchange alleges that Etana Custody, which is undergoing court-supervised liquidation in Colorado, operated a “Ponzi-like” scheme in which custody assets were commingled, spent on operating expenses and risky investments and falsely reported as intact to clients.
The Wyoming-based company said it entrusted Etana with hundreds of millions of dollars over several years as part of a fiat on-ramp partnership. But when it tried to raise about $25 million in reserve funds in April 2025, Kraken claims Etana stalled with what it claims were fabricated reconciliation issues and misleading explanations.
According to the complaint, Etana lacked the funds to meet the payout request and instead relied on new deposits to cover deficits.
“Kraken has millions of users and hundreds of billions of dollars in quarterly transaction volume. We didn’t get here by rolling over. If you’re taking our money or defrauding our customers, know this: we’ll find you, we’ll sue you, and we won’t stop until justice is served,” Matt Turetzky, head of litigation at Kraken, said in emailed comments.
Etana did not respond to a request for comment by the time of publication.
Counterparty risk, the danger that a company that holds or facilitates users’ assets cannot return them, has become a critical issue in crypto markets, where users often rely on exchanges, lenders and custodians to protect 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 supported.
High-profile failures from FTX to smaller custodians have shown how quickly trust can disappear when that assumption breaks down. Cases such as Kraken’s dispute with Etana underscore the same core concern of whether client funds are truly ring-fenced or exposed to operational and liquidity risks behind the scenes.
Kraken is a US-based crypto exchange operated by Payward Inc. that offers spot and derivatives trading along with custody and staking services. Founded in 2011, the platform serves both retail and institutional clients globally and supports trading of assets such as bitcoin and ether (ETH), as well as fiat entry and exit. It is known for its emphasis on security and regulatory compliance across multiple jurisdictions.
Etana is a crypto-focused custody firm that provided fiat on- and off-ramp services and held client assets on behalf of exchanges such as Kraken.
The lawsuit outlines several alleged instances of abuse. In one, Etana allegedly put at least $16 million of Kraken-related funds into promissory notes issued by Seabury Trade Capital, which later defaulted. Kraken claims these funds were never returned and may have been diverted to cover company expenses.
In another, Etana is accused of using client assets to fund a currency hedging strategy while keeping any investment income for itself.
Throughout this period, Kraken alleges, Etana continued to issue statements and dashboard updates that showed customer balances as secure and fully accounted for, despite internal deficiencies.
Regulatory pressure grew in 2025 when Colorado authorities issued a cease-and-desist order and increased capital requirements. Etana ultimately commenced 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 that he exercised near-total control over Etana’s operations and directed the misappropriation and concealment of funds.
The custodian bank is not the only crypto firm to run into liquidity problems in recent months. Institutional lender Blockfills filed for bankruptcy in March after halting withdrawals, reporting about $75 million in losses and facing a lawsuit alleging misappropriation of customer funds.
Read more: Crypto exchange Kraken was targeted by extortion attempts, but says there was no breach and no client funds at risk
UPDATE (MAY 4, 13:32 UTC): Clarifies details of Etana’s liquidation process.
