Kraken is involved in a major legal dispute after its parent company, Payward, accused Etana Custody and CEO Dion Brandon Russell of running what court filings describe as a “Ponzi-like” scheme that allegedly misused more than $25 million in client funds.
According to a second amended complaint filed on May 4 in a Colorado federal court, Payward claims Etana mixed customer assets with company operating funds, used client money for risky investments, and provided false account statements that made balances appear safe while financial losses grew in the background.
The lawsuit says Kraken tried to withdraw around $25 million in reserve funds in April 2025, but Etana delayed the process by claiming there were reconciliation problems. Court documents allege that at least $16 million of the missing funds were tied to promissory notes issued by Seabury Trade Capital, which later defaulted.
Etana entered court-supervised liquidation in November 2025 after Colorado regulators issued a cease-and-desist order and imposed stricter capital requirements. Court records reportedly showed the company had only about $6.83 million in cash while liabilities exceeded $26 million. Most of those liabilities were connected to Kraken’s claim.
The legal proceedings against Etana’s corporate entities are currently paused because of the liquidation process, but the case against Russell personally is still moving forward. Kraken is seeking at least $25 million in damages, along with additional penalties, legal costs, and court orders related to the alleged misuse of funds.
The case has drawn attention across the crypto industry because it raises bigger questions about how digital asset custodians handle customer funds and whether stronger regulations are needed. It also comes at a time when the crypto sector is pushing for clearer US custody laws through the proposed CLARITY Act.
