Payward, the parent company of Kraken, a prominent crypto exchange, has filed a lawsuit against its former custody partner, Etana, and the firm's CEO, Dion Brandon Russell, alleging a massive crypto custody fraud. According to the complaint, Etana misappropriated more than $25 million in client funds, which were supposed to be held in a secure and segregated manner. Instead, the funds were allegedly commingled, spent on operational expenses, and invested in risky ventures, all while being falsely reported as intact to clients. The lawsuit claims that Etana operated a 'Ponzi-like' scheme, relying on new deposits to cover shortfalls and lacking the funds to meet withdrawal requests.
Kraken had entrusted Etana with hundreds of millions of dollars as part of a fiat on-ramp partnership, but when it sought to withdraw $25 million in reserve funds in April 2025, Etana allegedly stalled and provided misleading explanations. The complaint also alleges that Etana's CEO exercised near-total control over the firm's operations and directed the misuse and concealment of funds.
Kraken is seeking at least $25 million in damages, plus potential treble damages under civil theft claims, and injunctive relief. The lawsuit highlights the risks associated with counterparty risk in crypto markets, where users often rely on exchanges, lenders, and custodians to safeguard their funds. The case is a significant example of the importance of security and regulatory compliance in the crypto industry.