Kraken’s Etana fraud case alleges a Ponzi-like scheme diverted more than $25m in client funds.
Summary
- Kraken parent Payward filed a second amended complaint in Colorado federal court accusing Etana Custody and CEO Dion Russell of misappropriating over $25m in client funds.
- The complaint alleges Etana commingled custodial assets with operating funds, made risky bets totaling $16m through Seabury Trade Capital notes, and issued falsified account statements.
- Etana entered court-supervised liquidation in November 2025 with just $6.83m in cash against more than $26m in liabilities.
Kraken’s Etana fraud case alleges a Ponzi-like scheme diverted more than $25m in client funds. Kraken’s parent company Payward filed a second amended complaint on May 4 in the US District Court for the District of Colorado, accusing Etana Custody and its CEO Dion Brandon Russell of commingling custodial assets with operating funds, financing risky bets, and sending falsified account reports that showed balances as fully intact while a funding gap widened.
Payward says Etana operated a “Ponzi-like enterprise” that recycled incoming client deposits to cover prior shortfalls. When Kraken attempted to withdraw roughly $25m in reserve funds in April 2025, Etana stalled with what the complaint calls fabricated reconciliation issues. At least $16m of the shortfall is tied to promissory notes issued by Seabury Trade Capital, which later defaulted.
What the court records show
Etana entered statutory liquidation in November 2025 after Colorado regulators issued a cease-and-desist order and increased capital requirements. Court filings show roughly $6.83m in cash against liabilities exceeding $26m, most of which represents the Kraken claim.
The federal case against Etana entities is currently stayed, with proceedings continuing against Russell personally.
Kraken is seeking at least $25m in compensatory damages, potential treble damages under civil theft claims, injunctive relief, and attorneys’ fees. The complaint also names Russell personally, alleging he exercised near-total control over Etana’s operations and personally directed the misuse and concealment of funds.
As crypto.news reported, Kraken has faced a wave of security and custody-related incidents in 2026, including a separate extortion attempt involving internal system access.
Industry context
The collapse follows a pattern of crypto custody failures. Institutional lender Blockfills filed for bankruptcy in March 2026 after halting withdrawals and reporting roughly $75m in losses.
The Etana case is being watched as a test of how courts treat custodians that commingle client funds, especially once those custodians are already under state liquidation orders.
As crypto.news documented, custody, payments, and financing contributed 53% of Kraken’s $2.2b adjusted revenue in 2025, making the integrity of its custody partnerships a core business question.
The case also arrives as the industry pushes for the CLARITY Act to create clearer custody frameworks, with crypto.news reporting that a Senate Banking Committee markup is targeted for the week of May 11.