Kraken parent Payward filed a second amended complaint on May 4 in Colorado federal court, accusing crypto custodian Etana Custody and its CEO Dion Brandon Russell of running a scheme that misappropriated over $25 million in customer reserves. The filing, in the U.S. District Court for the District of Colorado, turns earlier breach-of-contract claims into detailed fraud allegations, including civil theft.
Commingled funds and defaulted notes
According to the complaint, Etana commingled Kraken's client reserves with company money, then funneled at least $16 million into Seabury Trade Capital notes. Those notes later defaulted. Russell allegedly directed the misuse personally while dashboard balances showed assets as fully secure — users saw no warning signs.
The withdrawal that never happened
When Kraken requested a roughly $25 million withdrawal in April 2025, Etana stalled with fabricated reconciliation issues. The custodian lacked liquidity to return the funds. Instead, it used incoming deposits from other clients to cover prior shortfalls — a pattern the complaint calls Ponzi-like. The withdrawal request was effectively blocked.
Regulatory shutdown and a frozen AWS account
Colorado regulators issued cease-and-desist and suspension orders. Etana entered statutory liquidation in November 2025. The court-appointed receiver found cash holdings of roughly $6.83 million against liabilities exceeding $26 million, most of that the Kraken claim. The receiver is cooperating with Payward, producing documents and making former staff available for interviews. In a separate headache, crypto holdings stored on Amazon Web Services were briefly inaccessible because AWS terminated the account over unpaid fees in March 2026.
What recovery looks like
The federal case is stayed against Etana entities but proceeds against Russell, who faces personal liability for fraud and civil theft. Payward's recovery hinges on the claims process and any insurance proceeds. With cash holdings far short of what's owed, the receiver's work and Russell's personal assets are the main hopes. It's unclear whether insurance will pay out or if Russell has enough to cover a $25 million judgment.
