Payward, the parent company of crypto exchange Kraken, has accused former custodial partner Etana and its CEO, Dion Brandon Russell, of embezzling more than $25 million in customer funds, according to a second amended complaint filed Monday in U.S. District Court in Colorado.
The crypto exchange alleges that Etana Custody, which is undergoing court-supervised liquidation in Colorado, operated a “Ponzi-like” scheme in which custodial assets were commingled, spent on operating expenses and risky investments, and falsely reported as intact to customers.
The Wyoming-based company said it entrusted Etana with hundreds of millions of dollars over several years as part of a trust partnership. But when it sought to withdraw approximately $25 million in reserve funds in April 2025, Kraken claims Etana blocked what it sees as fabricated reconciliation issues and misleading explanations.
According to the complaint, Etana did not have the funds to meet the withdrawal request and instead relied on new deposits to make up the deficits.
“Kraken has millions of users and hundreds of billions of dollars in quarterly trading volume. We didn’t get there by going back. If you take our money or mislead our customers, know this: We will find you, we will 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 at the time of publication.
Counterparty risk, or the danger that a company holding or facilitating users’ assets cannot return them, has become a defining issue in crypto markets, where users often rely on exchanges, lenders and custodians to protect their funds.
Unlike traditional finance, where segregation, insurance, and oversight are more standardized, crypto platforms historically operate with looser controls, making it more difficult to verify that assets are fully collateralized.
FTX’s high-profile failures with small custodians have shown how quickly trust can evaporate when this assumption breaks. Cases like the dispute between Kraken and Etana highlight the same fundamental concern about whether client funds are truly reserved or exposed to behind-the-scenes operational and liquidity risks.
Kraken is a United States-based crypto exchange operated by Payward Inc., offering spot and derivatives trading as well as custody and staking services. Founded in 2011, the platform serves both retail and institutional clients worldwide, supporting the trading of assets like bitcoin. and ether (ETH), as well as fiat on- and off-ramps. It is known for its emphasis on security and regulatory compliance in multiple jurisdictions.
Etana is a crypto-focused custody company that provided fiat entry and exit services and held client assets on behalf of exchanges like Kraken.
The lawsuit describes several alleged instances of abuse. In one, Etana allegedly deployed at least $16 million of Kraken-related funds in promissory notes issued by Seabury Trade Capital, which subsequently defaulted. Kraken claims these funds were never returned and may have been diverted to cover company expenses.
In another, Etana is accused of using its clients’ assets to finance a currency hedging strategy while keeping the income from its investments for itself.
Throughout this period, Kraken alleges, Etana continued to issue account statements and dashboard updates that showed customer balances were secure and fully accounted for, despite internal deficiencies.
Regulatory pressure intensified in 2025, when Colorado officials issued a cease-and-desist order and increased capital requirements. Etana was finally put into compulsory liquidation in November 2025 and is now under the control of a judicial receiver.
Kraken is seeking at least $25 million in damages, as well as potential treble damages in civil theft suits, as well as injunctive relief and attorney’s fees.
The complaint also targets Russell personally, alleging that he exercised near total control over Etana’s operations and directed the misuse and concealment of funds.
The custodian is not the only crypto company to have encountered liquidity issues in recent months. Institutional lender Blockfills filed for bankruptcy in March after halting withdrawals, reporting losses of about $75 million and facing a lawsuit over misuse of customer funds.
Learn more: Crypto exchange Kraken targeted in extortion attempt, but says there were no breaches and no customer funds are at risk
UPDATE (MAY 4, 1:32 p.m. UTC): Clarifies details of Etana’s liquidation process.
