Kraken Parent Payward Files $25 Million Fraud Lawsuit Against Etana Custody: Allegations of 'Ponzi Scheme' Raised

On May 4, 2026, Payward Inc., the parent company of cryptocurrency exchange Kraken, filed a $25 million lawsuit for damages against its former custody partner, Etana Custody. In the complaint, Payward alleged that Etana misused and commingled customer funds and employed methods similar to a 'Ponzi scheme' to conceal these actions.

Customer funds were misused and commingled amidst a liquidity crisis, concealed within a framework similar to a Ponzi scheme.

The lawsuit directly targets not only Etana Custody but also its CEO, Brandon Russell. Payward emphasized that Etana abandoned its fundamental duty of safely storing assets and continued opaque fund management, resulting in significant financial losses.

Legal Proceedings in Colorado Federal Court

The lawsuit was filed in the U.S. District Court for the District of Colorado, with case number 1:25-cv-02829. The plaintiffs are listed as Payward Interactive, Inc. and Payward Trading, Ltd. Payward has formed a highly capable legal team from Boies Schiller Flexner LLP and Womble Bond Dickinson LLP to handle the case.

• Case Number: 1:25-cv-02829
• Plaintiffs: Payward Interactive, Inc. and Payward Trading, Ltd.
• Defendants: Etana Custody Limited and CEO Brandon Russell
• Key Allegations: Fraud, commingling of funds, use of Ponzi scheme methods

Signs of Etana Custody's downfall were already evident in 2025. On September 19, 2025, the Colorado Division of Banking issued an order suspending Etana's status as a non-depository trust company. Subsequently, Etana entered into statutory liquidation and receivership proceedings, and Payward's lawsuit is a major legal battle filed amidst this regulatory insolvency phase.

The relationship with Etana, once a major fiat and cryptocurrency custody partner for Kraken, has completely collapsed with this lawsuit. Payward criticized Etana for betraying trust and putting customer assets at risk, making it clear that they intend to hold them accountable for direct fraud charges separate from the receivership proceedings.

Payward's Strategic Shift and Bitnomial Acquisition

Interestingly, on the same day the lawsuit was filed against Etana, May 4, 2026, Payward announced the completion of its $550 million acquisition of Bitnomial. Through this, Payward has fully secured a CFTC-regulated derivatives trading stack within the United States.

This move is interpreted as a strategic shift for Payward, moving away from the previous model of relying on third-party custodians to securing direct regulatory licenses and achieving vertical integration. It appears to reflect an intention to build a more direct regulatory compliance system to minimize external risks like the Etana situation.

Awareness of the risks associated with third-party custody models is rising across the cryptocurrency industry. Experts advise that exchanges should adopt more strictly regulated custody solutions or strengthen their own security systems. The legal dispute between Payward and Etana is expected to significantly impact the criteria institutional investors use to select custody partners in the future.

A key point to watch moving forward is how much of the funds Payward will be able to recover through Etana's liquidation process led by the Colorado Division of Banking. The activities of the receiver and the court's rulings are expected to take shape over the coming months, potentially serving as an opportunity to redefine regulatory standards for the cryptocurrency custody industry.