Kraken secured an important victory in the U.S. court after its parent company, Payward, won an arbitration of US$ 22 million against audit firm Mazars USA. The case is related to the closeout of an audit that was near completion in 2022, during the period when cryptocurrency companies faced strong regulatory pressure in the country.
The arbitral decision recognized the losses alleged by Payward. Now, the company asks the Delaware Court of Chancery to convert the decision into a final judgment, consolidating the US$ 22 million award.
According to the company, Mazars’ unexpected exit caused financial impacts and also damaged its credibility with banks, regulators, business partners, and other institutions that rely on independent audits to assess companies in the sector.
“An audit is not a favor. It’s oxygen. Banking relationships, licenses, counterparties, and regulators rely on it. When your auditor resigns without finding irregularities, you inherit a cloud you didn’t create and pay to clear a name that was never tarnished. We’ve spent years and millions in legal fees doing exactly that,” wrote Arjun Sethi, co-CEO of Payward.
In Sethi’s assessment, Mazars’ decision came amid the environment created by Operation Choke Point 2.0, an expression used to describe the pressure placed on cryptocurrency companies after the FTX collapse. During that period, banks and service providers began taking a more cautious stance toward the sector.
The executive noted that, in January 2023, the Federal Reserve, FDIC, and OCC issued a joint statement warning financial institutions about risks related to cryptocurrency companies. According to him, the FDIC also sent dozens of communications to banks recommending that they avoid expanding operations tied to the market.
At the same time, the SEC, then chaired by Gary Gensler, opened lawsuits and investigations against various companies in the sector, including Kraken. According to Sethi, Mazars cited that regulatory environment and the SEC action as factors for rescinding the audit contract.
Despite that, the audit firm itself informed, in writing, that it had identified no issue with Kraken’s management or financial statements.
“When they backed out, Mazars confirmed in writing that they had no disagreement with our management, no concerns with our integrity, and that they hadn’t found any fraud,” said Sethi. “Read this again. An audit firm abandoned an audit that was almost completed for a client with which it had no professional dispute.”
In the following years, the SEC action against Kraken was dismissed. In parallel, much of the measures associated with Operation Choke Point 2.0 was revoked, while the government of the current U.S. president, Donald Trump, began investigations into potential de-banking cases involving companies.
Mazars also stepped away from the cryptocurrency market by stopping, back in 2022, all of its proof-of-reserves services for companies in the segment.
Beyond the court dispute, Sethi used the publication to argue for the approval of the CLARITY Act, a bill that seeks to establish more objective rules for defining the competencies of the SEC and the CFTC in regulating cryptocurrencies. The proposal remains under review in the U.S. Congress.
“The issue isn’t vindication. The issue is that no founder, no developer, and no customer should ever have to win an arbitration to prove they deserve a bank account, an auditor, and the basic infrastructure to do business in the United States,” wrote Sethi. “We won this battle. Now, our leaders in Congress, on both sides of the political spectrum, need to unite to finish the bigger battle. Pass the CLARITY Act.”