Payward, the parent company of cryptocurrency exchange Kraken, secured a $22 million arbitration award against Mazars USA after the auditor abandoned a nearly completed audit during Operation Choke Point 2.0. The company is seeking final judgment from the Delaware Court of Chancery on the award. Payward argued that Mazars withdrew without issuing professional findings against Kraken, causing reputational harm during a period when banks, regulators, and licensing authorities applied heightened scrutiny to crypto businesses. Payward co-CEO Arjun Sethi stated that Mazars confirmed in writing it had no disagreement with management, no concerns about management integrity, and found no fraud before withdrawing. The withdrawal occurred amid what crypto industry participants describe as an unofficial pressure campaign during the Biden administration that discouraged service providers from working with digital asset firms following the FTX collapse.
Mazars Confirmed No Professional Disputes Before Withdrawal
Mazars USA withdrew from the Kraken audit without identifying fraud or management integrity concerns, according to Payward's case. Sethi stated that Mazars confirmed in writing it had no disagreement with management, no concerns about integrity, and found no fraud. "An auditor abandoned a nearly finished audit of a client it had no professional dispute with," Sethi said. Mazars had already reduced its crypto exposure in 2022, including halting crypto proof-of-reserves work. Payward argued the withdrawal went beyond a routine business decision because it occurred during peak political and regulatory pressure on crypto firms. The absence of a completed audit created market uncertainty for Kraken despite no findings of wrongdoing. Sethi wrote that the company spent years and millions in legal fees addressing reputational damage from the incomplete audit.
Regulatory Agencies Issued Joint Statement and Bank Letters
In January 2023, the Federal Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency issued a joint statement raising safety and soundness concerns for banks working with crypto firms. Sethi stated the FDIC sent at least 25 letters to 24 banks instructing them to pause or refrain from expanding crypto-related activity. The Securities and Exchange Commission, then led by Gary Gensler, sued or investigated multiple crypto firms including Kraken during this period. Sethi said Mazars cited uncertainty and risk from legal developments, including the SEC's complaint against Kraken, when it terminated the audit relationship. The SEC's complaint against Kraken was later dismissed after Gensler stepped down, along with many of the agency's other crypto-related enforcement actions.
Operation Choke Point 2.0 Pressured Crypto Service Providers
Operation Choke Point 2.0 is a term coined by crypto venture capitalist Nic Carter for what industry participants describe as an unofficial pressure campaign during the Biden administration. The campaign discouraged banks and service providers from working with digital asset firms after the FTX collapse. The term references an earlier Obama-era initiative that pressured banks to cut ties with businesses viewed as high risk. Industry critics argue the pressure was delivered through supervisory warnings, enforcement activity, and reputational risk concerns rather than formal bans. Operation Choke Point 2.0 has been largely wound down, and the Trump administration began investigating wrongful debanking claims. Sethi called for passage of the CLARITY Act, which would define regulatory boundaries between the SEC and Commodity Futures Trading Commission over the crypto industry.
FAQ
What did Payward win against Mazars USA?
Payward secured a $22 million arbitration award against Mazars USA after the auditor abandoned a nearly completed audit of Kraken. The company is seeking final judgment from the Delaware Court of Chancery on the award.
Why did Mazars withdraw from the Kraken audit?
Mazars withdrew during Operation Choke Point 2.0, citing uncertainty and risk from legal developments including the SEC's complaint against Kraken. Payward stated that Mazars confirmed in writing it had no disagreement with management, no concerns about integrity, and found no fraud before withdrawing.
What regulatory actions occurred during Operation Choke Point 2.0?
In January 2023, the Federal Reserve, FDIC, and OCC issued a joint statement raising concerns about banks working with crypto firms. The FDIC sent at least 25 letters to 24 banks instructing them to pause or refrain from expanding crypto-related activity.
