Payward, the parent company of crypto exchange Kraken, filed a second amended complaint in the U.S. District Court in Colorado on Monday, accusing former custody partner Etana Custody and its CEO Dion Brandon Russell of misappropriating at least $25 million in client funds. The complaint alleges Etana operated a "Ponzi-like" scheme in which custodial assets were commingled, spent on operating expenses and risky investments, and falsely reported as intact to clients.
Etana Accused of Running a Ponzi-Like Custody Scheme
According to the filing, Wyoming-based Etana held hundreds of millions of dollars in client assets over several years as part of a fiat on-ramp partnership with Kraken. When Kraken sought to withdraw roughly $25 million in reserve funds in April 2025, Etana stalled with fabricated reconciliation issues and misleading explanations. The custodian lacked the funds to meet the request and instead relied on new deposits to cover shortfalls. Kraken alleges Etana deployed at least $16 million of Kraken-related funds into promissory notes issued by Seabury Trade Capital, which later defaulted. The firm also allegedly used client assets to finance a foreign-exchange hedging strategy while retaining all investment income for itself.
Withdrawal Refusal and Internal Shortfall
"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," said Matt Turetzky, head of litigation at Kraken, in emailed comments. Etana did not respond to a request for comment by publication time.
Specific Misuse: Loan Defaults and FX Hedging
The lawsuit details several instances of alleged misuse. One involves a $16 million promissory note to Seabury Trade Capital that defaulted, with funds possibly diverted to cover company expenses. In another, Etana is accused of using client assets for foreign-exchange hedging while pocketing all returns. Throughout this period, Etana continued issuing account statements and dashboard updates showing customer balances as secure — despite internal shortfalls.
Regulatory Action and Liquidation
Regulatory pressure mounted in 2025, when Colorado authorities issued a cease-and-desist order and increased capital requirements. Etana entered liquidation proceedings in November 2025 and is now under a court-appointed receiver. Kraken is seeking at least $25 million in damages, plus potential treble damages under civil theft claims, injunctive relief, and attorneys' fees. The complaint also targets Russell personally, alleging he exercised near-total control and directed the misuse and concealment of funds.
The case is the latest to highlight counterparty risk in crypto markets. Institutional lender Blockfills filed for bankruptcy in March 2025 after halting withdrawals, reporting roughly $75 million in losses and facing a lawsuit alleging misuse of customer funds.