Kraken Parent Wins $22M After Auditor Abandoned 2022 Audit

Payward, the parent company of crypto exchange Kraken, asked the Delaware Court of Chancery to enter final judgment on a $22 million arbitration award after auditor Mazars USA abandoned a nearly finished audit of Kraken in 2022. The company says the audit withdrawal caused reputational harm and business disruption.

An arbitrator found Mazars liable for the harm and awarded Payward $22 million. Payward’s filing asks the court to convert that award into a final judgment so the company can collect the sum.

Payward says Mazars walked away from the audit without issuing any findings against Kraken. In its legal filings, Payward says Mazars cited uncertainty and legal risk, including an SEC complaint against Kraken, when it withdrew. Payward states that Mazars confirmed in writing it had “no disagreement with our management, no concerns about our integrity, and that they had found no fraud.”

In a company blog post, Payward co-CEO Arjun Sethi wrote, ‘An audit is not a favor. It is oxygen. Banking relationships, licenses, counterparties, and regulators all depend on it.' He added that when an auditor quits with no findings, the client inherits a cloud and must spend time and money to clear its name.

Payward says the audit withdrawal forced Kraken to spend years and millions of dollars defending its business. The company noted additional events during the period of heightened regulatory scrutiny, including a federal search of former CEO Jesse Powell’s home in March 2023.

The audit exit occurred during a period of intense regulatory attention on the crypto industry that some market participants call Operation Choke Point 2.0. In January 2023, the Federal Reserve, FDIC and OCC issued a joint letter expressing safety-and-soundness concerns for banks doing business with crypto firms. Payward says the FDIC sent letters to multiple banks urging them to pause or refrain from expanding crypto-related activity. At the same time, the SEC had brought enforcement actions or opened inquiries into a number of crypto firms; Payward notes the SEC complaint against Kraken was later dismissed after the SEC chair left the agency.

Payward also said Mazars had been reducing its crypto work in 2022, including stopping proof-of-reserves engagements, which it says intensified the consequences of the audit withdrawal for Kraken and smaller firms.

Beyond the court filing, Payward urged Congress to pass the Clarity Act, legislation designed to define regulatory boundaries between the SEC and the Commodity Futures Trading Commission for digital assets. In the blog post, Sethi argued that companies and customers should not have to win an arbitration to secure basic services such as a bank account or an auditor.

Mazars has cited legal uncertainty and risk as reasons for its actions. The court filing and the arbitration award are focused on the claim that the abrupt audit withdrawal caused measurable damage to Payward and Kraken.