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In a second amended complaint submitted to the U.S. District Court for the District of Colorado, Payward Interactive and Payward Trading \u2014 doing business as Kraken \u2014 accuse Etana Custody Limited, Etana Custody Inc., CEO Dion Brandon Russell, and others of misappropriating over $25 million in Kraken customer funds.<\/p>\n
Payward alleges that Etana \u201coperated a Ponzi scheme,\u201d mixing assets it was supposed to hold in custody for Kraken with its own money to pay operating expenses and make \u201chigh-risk investments,\u201d then issuing \u201cfalse account reports\u201d that showed full balances even as a funding gap widened.<\/a><\/p>\n According to the complaint, problems came to a head in April 2025 when Kraken attempted to withdraw roughly $25 million in reserve funds.<\/p>\n Etana allegedly stalled the payout by citing \u201creconciliation issues\u201d that Payward calls fictitious, all while relying on \u201cnew deposits from other clients\u201d to plug the hole \u2014 behavior Kraken says is classic Ponzi\u2011like recycling of incoming funds to meet existing obligations.<\/a><\/p>\n The filing claims at least $16 million of the shortfall was tied to a promissory note issued by Seabury Trade Capital, which later defaulted, leaving Etana unable to meet withdrawal requests without fresh inflows.<\/p>\n Etana\u2019s troubles did not stop at private litigation.<\/p>\n <\/p>\n Colorado regulators subsequently issued a cease-and-desist order against Etana Custody Inc., and on November 7, 2025, a Denver County court appointed a liquidator\/receiver to take control of the company\u2019s assets under a statutory liquidation order.<\/p>\n Case updates on the receivership site confirm that Etana\u2019s operations are effectively frozen, with claims from customers and counterparties handled through a court-supervised process rather than the firm\u2019s management.<\/p>\n Payward is seeking at least $25 million in compensatory damages \u2014 corresponding to the amount it says Etana failed to return \u2014 plus treble damages under Colorado\u2019s civil theft statute, which could push the total sought to more than $75 million before fees and interest.<\/a><\/p>\n The suit also alleges breach of contract, breach of fiduciary duty, fraud, and negligent misrepresentation, arguing that Etana marketed itself as a \u201csegregated, bankruptcy\u2011remote\u201d custodian while secretly deploying Kraken\u2019s reserves into illiquid, high-risk credit bets.<\/a><\/p>\n In a recent crypto.news\u00a0report<\/a>, the case was highlighted as a test of how courts will treat custodians that commingle client funds in the crypto era, especially when those custodians are already under state liquidation orders.<\/p>\n Another crypto.news\u00a0analysis<\/a>\u00a0focused on the Etana receivership process itself, noting that Kraken and other institutional customers now have to queue alongside retail clients and other creditors to recover what they can from the collapsed custodian.<\/a><\/p>\nRegulatory collapse and Kraken\u2019s damages claim<\/h2>\n