Payward, the parent company of cryptocurrency exchange Kraken, accused former escrow partner Etana and its CEO, Dion Brandon Russell, of misappropriating more than $25 million in customer funds, according to a second amended complaint filed in U.S. District Court in Colorado on Monday.
The cryptocurrency exchange alleges that Etana Custody, which is undergoing a 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 customers.
The Wyoming-based firm said it entrusted Etana with hundreds of millions of dollars over several years as part of a trust partnership. But when it attempted to withdraw approximately $25 million in reserve funds in April 2025, Kraken claims Etana stalled with what it alleges are fabricated reconciliation issues and misleading explanations.
According to the complaint, Etana lacked 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 didn’t get here by renewing ourselves. If you take our money or cheat our clients, then know this: We will find you, we will sue you, and we won’t stop until justice is served,” Matt Turetzky, Kraken’s head of litigation, said in emailed comments.
Etana did not respond to a request for comment at the time of publication.
Counterparty risk, the danger that a company that holds or facilitates users’ assets will be unable to return them, has become a defining issue in cryptocurrency 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 difficult 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 is broken. Cases like Kraken’s dispute with Etana underscore the same core concern: whether client funds are truly protected or exposed to behind-the-scenes operational and liquidity risks.
Kraken is a US-based crypto exchange operated by Payward Inc., offering spot and derivatives trading along with custody and staking services. Founded in 2011, the platform serves retail and institutional clients worldwide and supports trading of assets such as bitcoin. and ether (ETH), as well as fiat on- and off-ramps. He is known for emphasizing security and regulatory compliance in multiple jurisdictions.
Etana is a cryptocurrency-focused custody company that provided fiat inbound and outbound services and held client assets on behalf of exchanges like Kraken.
The lawsuit describes several alleged cases of misuse. In one, Etana allegedly deployed at least $16 million of Kraken-related funds in promissory notes issued by Seabury Trade Capital, which he later defaulted on. Kraken claims that those funds were never returned and may have been diverted to cover company expenses.
In another, Etana is accused of using his clients’ assets to finance a currency hedging strategy while retaining investment income for himself.
During this period, Kraken alleges that Etana continued to issue account statements and dashboard updates that showed customer balances were safe and fully accounted for, despite internal deficits.
Regulatory pressure increased in 2025, when Colorado authorities issued a cease-and-desist order and increased capital requirements. Etana finally began a liquidation process 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 misuse and concealment of funds.
The custodian is not the only crypto company that has had liquidity problems in recent months. Institutional lender Blockfills filed for bankruptcy in March after suspending withdrawals, reporting approximately $75 million in losses and facing a lawsuit over misuse of customer funds.
Read more: Cryptocurrency exchange Kraken was the target of an extortion attempt, but says there was no breach and no customer funds were at risk.
UPDATE (MAY 4, 13:32 UTC): Clarifies details of the Etana liquidation process.
