Kraken's parent company, Payward, Inc., has filed a $25 million lawsuit against its former custody partner, Etana Custody, alleging a Ponzi scheme that misappropriated client funds. The legal action, submitted in a Colorado federal court, claims Etana used new customer deposits to cover operational gaps and risky investments, leaving Kraken unable to recover $25 million.
According to the court filing, Kraken discovered the fraud during a routine audit. The exchange had entrusted Etana with hundreds of millions of dollars since 2018 for handling fiat deposits and withdrawals. The partnership unraveled in 2023 when irregularities appeared, leading to termination and legal action.
The lawsuit details that Etana commingled funds and diverted them for operating expenses and speculative ventures. When losses mounted, the firm allegedly relied on new deposits to pay existing obligations—a classic Ponzi scheme pattern. The Colorado Banking Board placed Etana into liquidation in November 2025 after it failed to maintain capital requirements.
Kraken has added a fraud claim against Etana and CEO Dion Brandon Russell, seeking repayment of $25 million plus interest and attorney fees. The defendants' legal representatives dispute the allegations. Industry analysts warn this case could reshape custody standards, prompting stricter regulatory oversight and more rigorous partner audits.
Kraken assures users their funds remain safe, with reserves set aside to cover any losses. However, the incident raises serious questions about custody security in the crypto industry. The case is pending in U.S. District Court in Colorado, with no trial date set.
