Hassan Maishera
TL;DR
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Kraken's parent company, Payward, is seeking a final court judgment after winning a $22 million arbitration award against former auditor Mazars USA.
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Payward claims Mazars abandoned a nearly completed audit during the height of Operation Choke Point 2.0, causing significant reputational damage.
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The company argues the withdrawal reflected political and regulatory pressure rather than any issues with Kraken's financial reporting.
Kraken's parent company, Payward, has scored a significant legal victory in its dispute with former auditor Mazars USA, moving to secure a final court judgment on a $22 million arbitration award.
In a blog post published Tuesday, Payward said it has asked the Delaware Court of Chancery to formally enforce the award after an arbitrator ruled that Mazars improperly withdrew from a nearly completed audit of the cryptocurrency exchange in 2022.
According to the company, the auditor's decision caused substantial reputational harm at a time when the U.S. crypto industry was facing heightened regulatory scrutiny.
Payward Says Audit Withdrawal Damaged Kraken's Reputation
Payward co-CEO Arjun Sethi argued that the sudden withdrawal went far beyond a routine business decision.
He said audits are critical for maintaining banking relationships, regulatory licenses, and trust among counterparties. When an auditor exits an engagement without identifying any wrongdoing, the company involved can face significant reputational challenges despite having done nothing improper.
Sethi said Payward spent years and millions of dollars defending its reputation following Mazars' departure.
According to the company, Mazars confirmed in writing that it had no disagreements with management, no concerns about Payward's integrity, and no evidence of fraud when it terminated the engagement.
Payward linked the dispute to what has become known as Operation Choke Point 2.0—a term widely used within the cryptocurrency industry to describe alleged regulatory pressure on banks and financial service providers to distance themselves from crypto businesses following the collapse of FTX.
The phrase was popularized by venture capitalist Nic Carter, drawing comparisons to an Obama-era initiative that encouraged banks to sever ties with industries considered high risk.
Sethi pointed to actions taken by several U.S. banking regulators, including the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), which issued joint guidance in early 2023 highlighting potential risks associated with banking crypto firms.
He also referenced reports that the FDIC privately instructed numerous banks to limit or pause crypto-related activities during that period.
SEC Investigation Added to Regulatory Pressure
Payward said the broader regulatory environment also influenced Mazars' decision. At the time, the U.S. Securities and Exchange Commission (SEC), led by former Chair Gary Gensler, had launched investigations and enforcement actions against numerous cryptocurrency companies, including Kraken.
According to Sethi, Mazars cited legal uncertainty surrounding the SEC's complaint against Kraken as part of its rationale for ending the audit engagement.
However, he noted that the SEC's lawsuit against Kraken was later dismissed after Gensler left office, alongside several other crypto-related enforcement actions initiated during his tenure.
Mazars had already started reducing its exposure to the cryptocurrency sector before ending its relationship with Kraken.
In late 2022, the accounting firm suspended all of its crypto proof-of-reserves work, signaling a broader retreat from serving digital asset clients amid growing regulatory uncertainty.
Sethi also argued that the industry's regulatory challenges extended beyond Payward, citing the federal raid on the home of Kraken founder and former CEO Jesse Powell in 2023 as another example of the pressure facing crypto companies during that period.
He added that while large firms like Kraken ultimately survived, many smaller businesses may have suffered lasting damage.
Payward Calls on Congress to Pass the CLARITY Act
Beyond seeking enforcement of the arbitration award, Payward used the announcement to urge U.S. lawmakers to advance the CLARITY Act, legislation designed to establish clearer regulatory boundaries between the SEC and the Commodity Futures Trading Commission (CFTC) over digital assets.
The proposed bill is currently under consideration in the Senate and aims to reduce regulatory uncertainty surrounding cryptocurrencies.
Sethi argued that businesses should not have to resort to lengthy legal battles simply to access essential financial services such as banking and auditing.
He said passing the CLARITY Act would help provide the legal certainty needed for crypto companies to operate within the United States without facing inconsistent regulatory treatment.
