Why Did Payward Sue Mazars?
Payward, the parent company of Kraken, has secured a $22 million arbitration award against Mazars USA after the auditor abruptly abandoned a nearly completed audit of the crypto exchange during the height of Operation Choke Point 2.0.
The company is now asking the Delaware Court of Chancery to enter final judgment on the award. Payward argued that Mazars walked away from the audit without professional findings against Kraken, leaving the firm with reputational harm at a time when banks, regulators, counterparties, and licensing authorities were already applying heightened scrutiny to crypto businesses.
The case centers on a basic but critical part of financial infrastructure. For crypto firms, an audit is not only a compliance exercise. It can determine access to banking services, licensing pathways, institutional relationships, and credibility with regulators. When an auditor withdraws before completion, even without identifying fraud or management integrity concerns, the absence of a completed audit can create market uncertainty.
Payward co-CEO Arjun Sethi framed the issue in those terms. “An audit is not a favor. It is oxygen. Banking relationships, licenses, counterparties, and regulators all depend on it. When your auditor quits with no findings against you, you inherit a cloud you did nothing to create, and you pay to clear a name that was never dirty. We spent years and millions in legal fees doing exactly that,” Sethi wrote.
How Does Operation Choke Point 2.0 Fit Into The Case?
Operation Choke Point 2.0 is a widely used term for what crypto industry participants describe as an unofficial pressure campaign during the Biden administration that discouraged banks and service providers from working with digital asset firms after the collapse of FTX.
The term was coined by crypto venture capitalist Nic Carter and references an earlier Obama-era initiative that pressured banks to cut ties with businesses viewed as high risk. In the crypto context, industry critics argue that the pressure was not always delivered through formal bans, but through supervisory warnings, enforcement activity, and reputational risk concerns that made banks and professional service firms more cautious.
Sethi pointed to a January 2023 joint statement from the Federal Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency that raised safety and soundness concerns for banks working with crypto firms. He also said the FDIC sent at least 25 letters to 24 banks instructing them to pause or refrain from expanding crypto-related activity.
At the same time, the Securities and Exchange Commission, then led by Gary Gensler, was suing or investigating a range of crypto firms, including Kraken. According to Sethi, Mazars cited uncertainty and risk from legal developments, including the SEC’s complaint against Kraken, when it terminated the audit relationship.
Investor Takeaway
The Payward award highlights how regulatory pressure can affect crypto firms through indirect channels. Banking access, audits, licenses, and service-provider relationships can become pressure points even when a company has not been found to have committed wrongdoing.
Why Does The Auditor Withdrawal Matter?
The most important part of Payward’s argument is that Mazars allegedly had no professional dispute with Kraken when it withdrew. Sethi said the auditor confirmed in writing that it had no disagreement with management, no concerns about management integrity, and had found no fraud.
“When they withdrew, Mazars confirmed in writing that they had no disagreement with our management, no concerns about our integrity, and that they had found no fraud,” Sethi said. “Read that again. An auditor abandoned a nearly finished audit of a client it had no professional dispute with.”
That distinction matters for crypto companies because a service-provider exit can carry a penalty even when no misconduct is identified. Banks, regulators, and counterparties may interpret an incomplete audit as a warning sign, forcing the company to spend time and money proving that the problem was not its financial reporting or internal controls.
Mazars had already been reducing its crypto exposure in 2022, including halting crypto proof-of-reserves work. Payward’s case argues that the withdrawal from Kraken went beyond a routine business decision because it occurred when political and regulatory pressure on crypto firms was at its peak.
What Does This Mean For Crypto Regulation?
The award arrives as the political backdrop around crypto regulation has shifted. Operation Choke Point 2.0 has largely been wound down, previous guidance and restrictions have been rolled back, and the Trump administration has begun investigating wrongful debanking claims.
The SEC’s complaint against Kraken was also later dismissed after Gensler stepped down, along with many of the agency’s other crypto-related enforcement actions. For Payward, that sequence supports its argument that the firm was forced to absorb reputational damage and legal costs tied to a regulatory environment that later changed.
Sethi also used the legal win to call for passage of the CLARITY Act, which would define regulatory boundaries between the SEC and the Commodity Futures Trading Commission over the crypto industry. The legislation is being debated across Senate committees and has become a central part of the industry’s push for clearer market rules.
“Vindication is not the point. The point is that no founder, no developer, and no customer should ever need to win an arbitration to prove they deserved a bank account, an auditor, and the basic infrastructure of doing business in America,” Sethi wrote. “We won this fight. Now our congressional leaders from both sides of the aisle need to come together to finish the bigger one. Pass the CLARITY Act.”
Investor Takeaway
The case strengthens the crypto industry’s argument that unclear regulation can create business risk even outside direct enforcement actions. For investors, the key issue is whether future legislation reduces reliance on informal pressure and gives crypto firms more predictable access to banking, audits, and market infrastructure.
