The New Zealand company alleged by FIFA's official World Cup crypto exchange supporter of being part of 'a Ponzi-like enterprise'

Kraken is a big name in the crypto-asset world, so big you might have noticed its name when watching the recently completed football World Cup.

 The Wyoming, US headquartered company was FIFA's official crypto exchange supporter for the World Cup, with "Kraken" appearing on sideline advertising during games. FIFA describes Kraken as; "one of the world’s longest-standing and most trusted cryptocurrency platforms."

Unrelated to the World Cup, Kraken is the plaintiff in a Colorado court case in which a New Zealand company, that's a former registered NZ financial service provider, is one of three defendants.

This entity is Etana Custody Ltd, with whom Kraken has a custodian agreement dating to July 31, 2018. Kraken alleges Etana Custody Ltd, its associated Colorado company Etana Custody Inc, and Dion Brandon Russell, founder, major shareholder and director of Etana Custody Ltd, misappropriated more than US$25 million of custodial funds belonging to Kraken and its customers.

'A Ponzi-like enterprise'

Kraken alleges Etana was "a Ponzi-like enterprise" depending on the continuous flow of new customer deposits "to mask the shortfall created by Etana’s and Russell’s misappropriations." Kraken says it was Etana’s biggest customer, and when it decided to withdraw its funds, "the scheme collapsed." 

Russell maintained Etana was a safe, secure, and trustworthy custodian of Kraken’s and its customers’ assets, Karken says.

"Based on these and other representations, Kraken entrusted Russell and Etana with hundreds of millions of dollars in custodial funds belonging to Kraken and its customers."

"Unbeknownst to Kraken, the reality of Etana’s operation was nothing like what defendants represented. At Russell’s direction, Etana commingled custodial funds belonging to Kraken with funds belonging to other Etana customers without any reliable way of tracking each customer’s balance; used those funds to pay Etana’s operating expenses and bankroll risky investments; and fraudulently concealed the fact that millions of dollars belonging to Kraken and its customers had been depleted, lost, or endangered," Kraken alleges.

Colorado's Banking Board has had Etana Custody Inc placed in liquidation. Randel Lewis was appointed receiver for the Estate and liquidator for Etana. Lewis says an audit had revealed Etana Custody Inc was insolvent.

Lewis says prior to its incorporation in Colorado on March 8, 2021, Etana conducted business through Etana Custody Ltd, a NZ limited company with its principal place of business in Denver, Colorado. Etana’s custodial account business thus dates to 2017, he says.

Interest.co.nz has tried to reach Russell, so far unsuccessfully, via email, phone, Etana Custody Ltd's NZ company agent and his Colorado-based lawyers. Russell has reportedly disputed Kraken's allegations.

According to Lewis, Russell has "repeatedly requested" access to Etana’s US$2 million directors and officers liability insurance policy to fund his private legal defense against Kraken, "despite his limited cooperation with the Receiver." Lewis has not authorised this. Lewis also says Russell has attempted to access Etana’s business records without Lewis' authorization or consent.

Etana Custody Ltd was incorporated in NZ in 2014 and remains a registered company. It was also registered on NZ's financial service providers register (FSPR) between June 2014 and July 2017, and again between June 2018 and February 2024.

Interest.co.nz's 2017 & 2019 articles

Interest.co.nz first wrote about Etana Custody Ltd in May 2017. Among other things, we noted the NZ registered company and financial service provider had Taya Burnett, the wife of notorious ex-pat NZ company incorporator Ian Taylor, as a director.

Taylor is now in custody on the Gold Coast facing money laundering allegations and extradition to the United States.

Following our 2017 story, Etana Custody Ltd was removed from the FSPR by the then-Registrar of Financial Service Providers Ross van der Schyff. And ECS Ltd, a company service provider providing services to Etana Custody Ltd via a serviced virtual office in downtown Auckland, was issued a formal warning under the Anti-Money Laundering and Countering Financing of Terrorism Act by the Department of Internal Affairs.

Then in 2019 interest.co.nz wrote about how Etana Custody Ltd was back on the FSPR. Burnett was no longer a director by this time. The 2019 article came after interest.co.nz was contacted by a New Zealander to whom Etana Custody Ltd had been recommended by Kraken.

The New Zealander, who interest.co.nz agreed not to name, was surprised by what they found at Etana, saying it appeared to be a primarily Bulgarian-based online custodial service operating "through an unlicensed, unregulated non-AML [anti-money laundering] compliant NZ shell company, providing among other things custodial services to clients of one of the most established and trusted cryptocurrency exchanges in the world."

In 2019 Russell assured interest.co.nz; "the [Etana] business is legitimate, there's no question on that." Russell said Etana didn't work with Taylor and nor did he meet him or have any correspondence with him. Etana's previous registered agent had appointed Burnett, he said.

"Upon discovery, which your article highlighted, we moved to have Ms Burnett replaced immediately and sought the appointment of a reputable, local director," Russell said in 2019.

Russell said he had grown up in Cape Town and never been to NZ. Asked why Etana chose NZ, Russell said this was because NZ was considered a western jurisdiction friendly to global financial markets, he could "employ people at a reasonable rate," and NZ had a good reputation.

Not regulated in NZ

Being registered on the FSPR doesn't necessarily mean an entity is regulated.  

"In general, custodians must register on the FSPR, and belong to a dispute resolution scheme if they have retail clients, but do not need to be licensed," a Financial Markets Authority spokesperson says.

During its first stint on the FSPR, Etana Custody Ltd was registered to provide broking service, including a custodial service, with the Insurance & Financial Services Ombudsman Ltd as its dispute resolution scheme. 

During its second stint on the FSPR, Etana Custody Ltd was registered to provide both retail and wholesale custodial services. Its dispute resolution scheme was Financial Dispute Resolution Service (FDRS). An FDRS spokesperson confirmed Etana Custody Ltd was an FDRS member between July 2018 and February 2023, but wouldn't comment further citing privacy reasons.

The New Zealander who was a Kraken customer and had Etana recommended to them by Kraken in 2019, has recently shared, with interest.co.nz, some correspondence with their Kraken account manager dating from early 2019. In this they shared interest.co.nz's articles, and raised concerns about Etana Custody Ltd being unregulated, and Kraken's relationship with the company.

'Kraken has not done business with Etana’s New Zealand entity for many years'

A Kraken spokesperson contacted by interest.co.nz played down the role of NZ's Etana Custody Ltd.

"Kraken’s relevant dealings were with Etana Custody Inc., which was a Colorado-regulated trust company. Kraken has not done business with Etana’s New Zealand entity for many years," the spokesperson says.

According to Bolen Ng, the Ministry of Business, Innovation & Employment's National Manager for Business Registries, Etana Custody Ltd was deregistered from the FSPR on 8 February 2024 for failure to file an annual confirmation. To remain registered on the FSPR, a financial service provider's details and services must be confirmed annually with MBIE.

Russell talks about Etana in the video below.

*This article was first published in our email for paying subscribers. See here for more details and how to subscribe.