Swan Bitcoin is facing a lawsuit of nearly $1 billion, with Prime Trust’s post-bankruptcy litigation trust accusing the Bitcoin services company of using insider knowledge to pull out a massive cache of assets from the troubled custodian just days before its collapse in 2023.
The complaint, filed in Delaware bankruptcy court, names Electric Solidus, the corporate entity behind Swan, as the defendant. It alleges the company received over $24.6 million in cash, 11,994 Bitcoin (BTC) now worth approximately $923 million, around 5 million USDT, and smaller amounts of other digital assets, all withdrawn in the critical window before Prime Trust filed for bankruptcy in August 2023.
The insider at the centre of it all
At the heart of the allegations is an unnamed Prime Trust senior executive who, the lawsuit claims, was simultaneously serving as a paid advisor to Swan through a side arrangement that dated back to July 2019, while still employed at the custodian.
According to the complaint, four days before Prime Trust was scheduled to meet with Nevada regulators on May 26, 2023, this executive opened an encrypted messaging channel with Swan CEO Cory Klippsten and set all messages to auto-delete every 24 hours. The auto-delete feature was turned off the day after the regulatory meeting, by which point Swan had already withdrawn more than 10,000 Bitcoin from Prime Trust.
“Swan knew to transfer fiat and crypto from Prime immediately prior to Prime filing for bankruptcy to avoid catastrophic losses,” the complaint stated.
A full evacuation, not a partial withdrawal
The lawsuit further alleges that what started as a partial asset transfer was abruptly expanded into a full-scale evacuation of all of Swan’s funds, one day before the Nevada regulatory meeting took place. Prime Trust staff were reportedly scrambling to process the transfer before the close of business that same day, based on internal Slack communications cited in the filing.
Adding to the allegations, the complaint claims Prime Trust created an internal ledger entry labelled “PT FBO Swan Customers” on May 25, an account that did not exist prior to that date, in what the plaintiff describes as an attempt to make it appear Swan’s funds had always been held in a separate trust. This, the suit argues, would have made those assets harder to recover in bankruptcy proceedings.
“In substance, however, those assets had not been and were not held in trust for the benefit of Swan’s customers,” the complaint states.
What the lawsuit is seeking
The Prime Trust litigation trust is pursuing recovery under preferential transfer and fraudulent transfer provisions of the US Bankruptcy Code. It is also asking the Delaware court to disallow any future claims Swan might attempt to assert against the Prime Trust estate until full restitution has been made, effectively blocking Swan from recovering anything further until it has returned what is alleged to have been improperly withdrawn.
Swan had not responded to requests for comment at the time of publishing.
Background: Prime Trust’s collapse
Prime Trust was once one of the more prominent crypto custodians in the US, providing backend infrastructure for dozens of crypto platforms. It filed for Chapter 11 bankruptcy protection in August 2023 after Nevada regulators intervened over concerns about its financial condition, including an inability to meet customer withdrawal obligations.
The current lawsuit is part of a wider effort by the post-bankruptcy litigation trust to claw back assets that were transferred out of Prime Trust in the weeks leading up to its collapse, with Swan’s alleged withdrawal representing the largest and most contentious of those transfers by a significant margin.
