Kraken’s parent company, Payward, has filed a lawsuit accusing crypto custodian Etana and its CEO, Dion Brandon Russell, of misappropriating more than $25 million in client funds. The complaint, submitted to a U.S. District Court in Colorado, claims the losses emerged after Etana failed to meet a withdrawal request and concealed financial shortfalls.Singapore Summit: Meet the largest APAC brokers you know (and those you still don't!)Withdrawal Request Triggers DisputeKraken said it entrusted Etana with hundreds of millions of dollars through a fiat on-ramp partnership over several years. In April 2025, the exchange attempted to withdraw about $25 million in reserve funds. According to the lawsuit, Etana delayed the process and cited reconciliation issues that Kraken now considers misleading.Kraken had a multi-year fiat on-ramp partnership with Etana Custody, entrusting the firm with hundreds of millions of dollars in client funds. Etana served as a third-party custodian facilitating transfers between Kraken and traditional banking systems. Early Warning Signs By May 2025, problems began emerging when customers started reporting issues with Etana withdrawals. Etana met with SEC Crypto Task Force representatives in early May 2025 to discuss regulatory approaches for crypto assets, suggesting the company was already experiencing compliance challenges.But the complaint as reported by Coindesk, states that Etana did not hold sufficient funds to fulfill the request. Instead, the firm allegedly relied on new deposits to cover existing gaps.Payward alleges that Etana commingled customer funds and used them for operational expenses and investments. The lawsuit describes the setup as “Ponzi-like,” with incoming funds used to offset earlier losses.One example cited involves at least $16 million linked to Kraken that Etana allegedly invested in promissory notes from Seabury Trade Capital. The issuer later defaulted, and Kraken claims the funds were not returned. Allegations of Commingling and LossesThe complaint also alleges that Etana used client assets in a foreign-exchange hedging strategy while retaining any gains. Despite these issues, Etana reportedly continued to show customer balances as fully intact.Regulatory pressure increased in 2025, when Colorado authorities issued a cease-and-desist order and raised capital requirements. Etana entered court-supervised liquidation in November 2025 and is now under a receiver.Keep reading: Kraken Pulls In $200 Million With App-Based DeFi Yield BetKraken is now seeking at least $25 million in damages, along with additional penalties and legal costs. The case adds to ongoing concerns about how crypto firms manage and safeguard client assets.Meanwhile, Kraken’s DeFi Earn product has surpassed $200 million in deposits, reflecting growing demand for onchain yield accessible directly through a centralized exchange app. The offering enables users to earn dollar-denominated returns on their balances without transferring funds to external wallets or interacting with complex DeFi protocols, instead providing a simplified, integrated experience within the Kraken platform. This article was written by Jared Kirui at www.financemagnates.com.

Read full article on FINANCEMAGNETS