Payward Alleges $25M Crypto Custody Fraud Against Etana, Claims 'Ponzi-Like' Concealment of Client Funds

Kraken's parent company Payward has filed a lawsuit alleging that Etana, a crypto custody firm, and its CEO orchestrated a $25 million fraud involving the misuse and concealment of client funds in what court filings describe as a "Ponzi-like" scheme.

The complaint, submitted in federal court, accuses Etana of commingling customer assets with operational funds and misleading Kraken about the safety of holdings during a period of severe liquidity stress. Payward claims it discovered the alleged misconduct after attempting to verify reserve integrity, prompting the legal action against both the firm and its chief executive. The exchange states that hundreds of millions in client cryptocurrency were exposed to risk as a result of the alleged scheme.

The lawsuit raises significant questions about oversight of third-party custody relationships in the digital asset industry. Regulators have increasingly scrutinized how exchanges manage external custodial partnerships, particularly after high-profile failures involving entangled customer assets. If the allegations prove accurate, Etana's clients could face substantial losses while Kraken may face reputational and legal fallout for its association with the custody partner. The case signals mounting pressure on exchanges to implement stricter due diligence on firms holding customer funds, especially as market volatility strains liquidity across the sector.