Kraken Faces $25 Million Claim Over Custody Scam

Kraken’s parent company, Payward Inc. , has filed a new lawsuit against former custody partner Etana and its CEO, alleging that more than $25 million of client money was misused. The claim comes as Etana is battling Chapter 11 bankruptcy and has been accused of running a “Ponzi‑style” operation. According to the complaint, Etana mixed client assets with operating costs and risky investments, then reported those funds as untouched to customers. The dispute began when Kraken tried to pull roughly $25 million in reserve money from Etana in April 2025. Etana allegedly stalled the request, citing invented reconciliation problems and vague explanations. The firm supposedly lacked sufficient cash to honor the withdrawal and instead relied on new deposits to cover gaps. Kraken’s litigation chief warned that it would pursue legal action until justice was achieved. Crypto exchanges often depend on third‑party custodians to protect user funds, but the industry lacks the strict segregation and insurance that traditional banks use. High‑profile collapses like FTX have shown how quickly trust can disappear when a custodian’s controls are weak. Kraken’s lawsuit highlights the same danger: whether customer money is truly set aside or exposed to operational risks.The complaint details several alleged missteps. In one instance, Etana supposedly invested about $16 million of Kraken’s money in promissory notes that later defaulted. In another, the firm is accused of using client assets for a foreign‑exchange hedge while keeping any profits. Despite these problems, Etana continued to send account statements that showed balances as safe and fully accounted for. Regulators stepped in during 2025, issuing a cease‑and‑desist order and tightening capital rules. Etana entered liquidation in November 2025, now under court control. Kraken seeks at least $25 million in damages, plus potential triple‑damages for civil theft, injunctive relief, and attorney fees. The lawsuit also targets Etana’s CEO personally, claiming he directed the alleged misconduct. Other crypto firms have faced similar liquidity issues recently. Blockfills, an institutional lender, filed for bankruptcy in March after stopping withdrawals and losing about $75 million. These events underscore the broader risk of relying on custodians with lax oversight.