Swan Bitcoin Faces $1 Billion Lawsuit Over Alleged Insider Transfers
By Abdus Salam
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Swan Bitcoin is embroiled in a high-stakes legal battle, facing a staggering lawsuit from Prime Trust’s litigation trust, which alleges that the cryptocurrency firm exploited insider knowledge to withdraw nearly $1 billion in Bitcoin and cash mere days before Prime Trust's bankruptcy filing in August 2023.
The complaint, lodged in Delaware bankruptcy court, accuses Electric Solidus—Swan’s parent company—of securing more than $24.6 million in cash and 11,994 Bitcoin, currently valued at approximately $923 million, alongside millions in USDT and other digital assets just ahead of the custodian's collapse.
Central to these allegations is an unnamed senior executive at Prime Trust, who reportedly held dual roles as a paid advisor to Swan since July 2019. It is alleged that just four days prior to an important meeting with Nevada regulators on May 26, 2023, this executive initiated an encrypted communication with Swan CEO Cory Klippsten, employing auto-delete features to obscure their discussions. The features were allegedly disabled a day after this critical meeting, coinciding with Swan’s withdrawal of more than 10,000 Bitcoin from Prime Trust, raising eyebrows within the financial community.
The lawsuit emerges amid a larger effort by Prime Trust's post-bankruptcy litigation trust to reclaim assets that were moved out during the weeks leading to its financial downfall. The trust argues that Swan’s actions demonstrated foreknowledge of Prime Trust’s impending crisis, allowing them to transfer significant funds before the broader customer base could react.
The complaint outlines how Swan expanded an initial partial withdrawal into a complete evacuation of funds just one day before the Nevada meeting, compelling Prime Trust staff to expedite the transaction. Internal communications from Prime Trust staff reveal anxiety and urgency in complying with Swan’s abrupt requests, a sign of the chaos that surrounded the firm during this tumultuous period.
Additionally, the suit claims that an internal ledger labeled “PT FBO Swan Customers” was created on May 25, aimed at misrepresenting Swan's assets as held in a distinct trust. In reality, the suit asserts, these assets were not properly safeguarded for Swan's clients, making it potentially harder for bankruptcy trustees to reclaim these funds.
As the litigation unfolds, the plaintiff seeks to invoke provisions of the Bankruptcy Code related to preferential transfers and fraudulent transactions, also requesting that the court disallow any future claims Swan may present against the bankruptcy estate until restitution is fulfilled.
The outcome of this case could have profound implications for Swan Bitcoin and the broader cryptocurrency ecosystem, which has already witnessed significant scrutiny amidst regulatory uncertainties.
For further updates on this developing story, please check back regularly.
Source: Cointelegraph