I just got a copy of a lawsuit against the Kraken cryptocurrency exchange — filed on 26 November 2019, by ex-employee Nathan Runyon.

Runyon alleges fake company officer addresses, disappearing customer funds, stock option shenanigans, and sanctions violations, on the part of Kraken — and that he was fired for bringing these issues up. Runyon also alleges discrimination against him as a disabled Marine Corps veteran.

The action is Case No. CGC-19-581099 in the Superior Court of California for the County of San Francisco: Nathan Peter Runyon v. Payward, Inc., d/b/a Kraken, and Kaiser Ng, Kraken’s CFO. Here’s the suit — I summarise it below.

I spoke to Runyon’s attorney, Claire Cochran. She specialises in wrongful termination suits in Bay Area tech companies. They’re stressing the whistleblower angle — “my client’s address is still listed as the address of the CFO!”

I also contacted Kraken, who said in an email, “we do not comment on pending legal matters” — which is perfectly reasonable.

Summary of the suit

Quite a lot of the suit just recounts harassment at work — the sort of behaviour that’s sadly typical of claims against bad employers. I’ll be summarising the parts that are of direct crypto- and financial-specific interest and concern.

I must stress — all of this is presently just allegations. None of this is findings of fact. When reading the following, treat every sentence as prefixed with “it is alleged.”

In particular, Runyon alleges malfeasance on Ng’s part, and on CEO Jesse Powell’s part. Again, these claims must not be taken as if they were proven fact, just from the allegations in the suit.

Financial and compliance allegations against Kraken and Ng

Runyon started work at Kraken as a financial analyst on 26 March 2018. Kaiser Ng, Kraken’s chief financial officer, was his immediate boss.

Runyon’s first assignment, starting 30 March, was to help with an audit. Ng told Runyon to “come up with anything for the audit list that would satisfy the questions without regard to how accurate the info was” — Ng wanted whatever would “check the box.”

In August 2018, Ng asked if he could use Runyon’s home address as his own — on legal, licensing and banking documents.

Ng claimed concern for his family’s safety, having heard of kidnappings related to crypto exchanges. Runyon wasn’t convinced, so Ng offered to pay Runyon $1,600 a month rent for a room in his apartment, so Ng could use that address on official forms. Runyon says Ng never paid the rent.

The company attorney handling the 2019 rental agreement between Runyon and Ng told Runyon that Jesse Powell, the co-founder and CEO of Kraken, had done the same thing to her — that Powell rented a room in her apartment, used her address on official forms, and never paid her the rent.

Runyon was concerned that several of the countries that Kraken dealt with were on the Office of Foreign Assets Control’s Specially Designated Nationals And Blocked Persons List. That is — they were sanctioned, and it was hugely illegal for Kraken to operate in those countries.

Runyon notified Steve Christie, Kraken’s compliance officer, of this on 20 February 2019, and multiple times thereafter. He also raised it with Ng. Runyon dropped the issue when he felt it was clear nothing would be done.

In March 2019, Runyon was asked by Ng to reconcile Kraken customer account balances with the company’s bank balances, in various currencies. Runyon discovered that Kraken’s bank accounts were millions of dollars short, compared to the total customer funds that Kraken should have had on hand.

Runyon called this to Ng’s attention — he was worried that someone had found their way into the system, and was bleeding the funds. Ng immediately removed Runyon from the project.

Stock grant strangeness

From April 2019, Runyon spent most of his time working on the company’s internal equity management and valuation program, which let employees exercise their stock options and transfer shares.

Around 7 May, Runyon noticed that two employees’ stock options grant vesting schedules were different in the program to what had been set in the 27 November 2017 Board minutes. He assumed it was an error, and corrected it. One of the two employees contacted him to learn how to exercise their options — and Runyon saw the numbers had changed back.

Runyon asked Ng about this. Ng told him the board was amending the terms — and that it wasn’t an issue because … the employee didn’t know about it.

Runyon worried that this was legally questionable, and would cause problems in an audit — especially as Kraken was working towards taking the company public. Ng said he would take care of it, and told Runyon to “stop worrying about it.”

The board voted new options grants on 30 June 2019 — and there were no amendments to the two employees’ grants. Runyon brought this to Ng’s attention again, and was told again not to worry about it — and that he was not allowed to change anything in the program without written approval.

Runyon asked to use some of his paid time off to deal with the stress of long hours at work, having taken none in over a year of employment. Ng approved the leave — then fired Runyon over Zoom chat on his first day of leave, nine days after the second time Runyon had brought the stock options issues to Ng’s attention.

Causes of action

Runyon’s causes of action are the employment issues — harassment over being a veteran, discrimination over a medical disability, retaliation for whistleblowing, wrongful termination … and Ng not paying his rent.

What happens now?

Kraken’s attorney has signed a notice of acknowledgement of the suit — so this is real, and it’s on.

Next comes discovery — which should take six weeks to two months — and depositions — three to six months or more. Nothing happens fast. They are unlikely to see a courtroom until later in the process, Cochran tells me.

Many of the allegations in the suit — and I must stress again, these are only allegations at this stage — would, if found true, violate multiple US laws and regulations. It is not clear if any of these have been reported as yet to the relevant agencies, or if said agencies are investigating of their own accord.