Payward, Kraken's parent company, sued custody provider Etana and its CEO this week over $25 million in alleged crypto fraud. The lawsuit claims client funds were misused, commingled, and hidden in a 'Ponzi-like' scheme that unraveled during a liquidity crisis. Payward wants restitution and an injunction to freeze Etana's assets.
How the Fraud Unfolded
Payward filed the complaint in New York federal court. It says Etana diverted client funds meant for custody to cover its own operational gaps. When Payward tried withdrawing assets for clients, Etana couldn't fulfill the requests. The liquidity crunch exposed the shortfall.
What Payward Specifically Alleges
The lawsuit details how Etana mixed client funds with its own operational money. Payward claims Etana created false records to conceal the commingling. A 'Ponzi-like' structure emerged where new user deposits filled previous withdrawal commitments. The company didn't inform Payward about the scheme until the crisis hit.
Kraken's Immediate Reaction
Kraken paused all client withdrawals through Etana on Tuesday after discovering the issues. The exchange moved affected assets to alternative custodians within 24 hours. Payward confirmed all impacted client funds have been secured though it didn't specify how many users were involved.
What Happens Next
Etana faces a June 10 court date to respond. The firm hasn't issued any public statement. Payward's legal team says they'll seek a temporary restraining order within 48 hours to prevent asset movement. Clients with funds at Etana may face withdrawal delays until the case resolves.
