Payward, the guardian firm of crypto change Kraken, has accused former custody accomplice Etana and its CEO, Dion Brandon Russell, of misappropriating greater than $25 million in shopper funds, based on a second amended criticism filed within the U.S. District Court docket in Colorado on Monday.
The crypto change alleges that Etana Custody, which goes by Chapter 11 chapter, operated a “Ponzi-like” scheme during which custodial belongings had been commingled, spent on working bills and dangerous investments, and falsely reported as intact to shoppers.
The Wyoming-based agency stated it entrusted Etana with a whole lot of thousands and thousands of {dollars} over a number of years as a part of a fiat on-ramp partnership. However when it sought to withdraw roughly $25 million in reserve funds in April 2025, Kraken claims Etana stalled with what it alleges as fabricated reconciliation points and deceptive explanations.
In accordance with the criticism, Etana lacked the funds to fulfill the withdrawal request and as an alternative relied on new deposits to cowl shortfalls.
“Kraken has thousands and thousands of customers and a whole lot of billions of {dollars} in quarterly transaction quantity. We didn’t get right here by rolling over. If you happen to take our cash or deceive our prospects, then know this: we’ll discover you, we’ll sue you, and we won’t cease till justice has been served,” Matt Turetzky, head of litigation at Kraken, stated in emailed feedback.
Etana did not reply to a request for remark by publication time.
Counterparty threat, the hazard {that a} agency holding or facilitating customers’ belongings can’t return them, has change into a defining difficulty in crypto markets, the place customers usually depend on exchanges, lenders and custodians to safeguard funds.
In contrast to conventional finance, the place segregation, insurance coverage and oversight are extra standardized, crypto platforms have traditionally operated with looser controls, making it more durable to confirm whether or not belongings are absolutely backed.
Excessive-profile failures from FTX to smaller custodians have proven how shortly belief can evaporate when that assumption breaks. Circumstances like Kraken’s dispute with Etana underscore the identical core concern, whether or not buyer funds are actually ring-fenced or uncovered to operational and liquidity dangers behind the scenes.
Kraken is a U.S.-based crypto change operated by Payward Inc., providing spot and derivatives buying and selling alongside custody and staking providers. Based in 2011, the platform serves each retail and institutional shoppers globally, supporting buying and selling in belongings like bitcoin and ether (ETH), in addition to fiat on- and off-ramps. It’s recognized for emphasizing safety and regulatory compliance throughout a number of jurisdictions.
Etana is a crypto-focused custody agency that offered fiat on- and off-ramp providers and held buyer belongings on behalf of exchanges like Kraken.
The lawsuit outlines a number of alleged situations of misuse. In a single, Etana purportedly deployed at the very least $16 million of Kraken-related funds into promissory notes issued by Seabury Commerce Capital, which later defaulted. Kraken claims these funds had been by no means returned and should have been diverted to cowl firm bills.
In one other, Etana is accused of utilizing buyer belongings to finance a foreign-exchange hedging technique whereas retaining any funding revenue for itself.
All through this era, Kraken alleges that Etana continued issuing account statements and dashboard updates that confirmed buyer balances as safe and absolutely accounted for, regardless of inner shortfalls.
Regulatory stress mounted in 2025, when Colorado authorities issued a cease-and-desist order and elevated capital necessities. Etana in the end entered liquidation proceedings in November 2025 and is now underneath the management of a court-appointed receiver.
Kraken is looking for at the very least $25 million in damages, together with potential treble damages underneath civil theft claims, plus injunctive aid and attorneys’ charges.
The criticism additionally targets Russell personally, alleging he exercised near-total management over Etana’s operations and directed the misuse and concealment of funds.
The custodian isn’t the one crypto agency to run into liquidity hassle in latest months. Institutional lender Blockfills filed for chapter in March after halting withdrawals, reporting roughly $75 million in losses and dealing with a lawsuit alleging misuse of buyer funds.
Learn extra: Crypto change Kraken focused in extortion try however says there was no breach and no shopper funds in danger
