Payward, the parent company of Kraken, a prominent cryptocurrency exchange, has filed a lawsuit against its former custody partner Etana and the company's CEO, Dion Brandon Russell, alleging that they misappropriated more than $25 million in client funds. The lawsuit, filed in the U.S. District Court in Colorado, claims that Etana operated a 'Ponzi-like' scheme, commingling custodial assets, spending them on operational expenses and risky investments, and providing false reports to clients. Kraken had entrusted Etana with hundreds of millions of dollars as part of a fiat on-ramp partnership but claims that when it tried to withdraw approximately $25 million in reserve funds in April 2025, Etana stalled with fabricated reconciliation issues and misleading explanations.
According to the complaint, Etana lacked the necessary funds to meet the withdrawal request and relied on new deposits to cover shortfalls. The head of litigation at Kraken, Matt Turetzky, stated that the company will pursue justice, saying, '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.' The lawsuit highlights the issue of counterparty risk in crypto markets, where users rely on exchanges, lenders, and custodians to safeguard their funds. Unlike traditional finance, crypto platforms have historically operated with looser controls, making it harder to verify whether assets are fully backed. The case against Etana is not an isolated incident, as high-profile failures have shown how quickly trust can evaporate when assumptions about fund safety break.
Kraken is a U.S.-based crypto exchange that offers spot and derivatives trading, custody, and staking services, emphasizing security and regulatory compliance. Etana, on the other hand, 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 instances of alleged misuse, including the deployment of at least $16 million of Kraken-related funds into promissory notes that later defaulted and the use of customer assets to finance a foreign-exchange hedging strategy while retaining investment income. Throughout this period, Etana allegedly continued to issue account statements and dashboard updates showing customer balances as secure and fully accounted for, despite internal shortfalls. Regulatory pressure mounted in 2025, leading to a cease-and-desist order and increased capital requirements, ultimately resulting in Etana's liquidation proceedings in November 2025. 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 case against Etana is part of a larger issue of liquidity troubles in the crypto industry, with other firms like Blockfills facing similar challenges.