Prime Trust Bankruptcy Estate Targets Swan Bitcoin in Nearly $1 Billion Lawsuit
A lawsuit filed against Swan Bitcoin claims the company leveraged privileged insider information to extract approximately $1 billion in cryptocurrency and fiat currency from Prime Trust just days prior to the custodian's 2023 bankruptcy proceedings.
Prime Trust's post-bankruptcy litigation trust has initiated legal proceedings against Swan Bitcoin, claiming the cryptocurrency services firm leveraged privileged information from an insider to withdraw approximately $1 billion in holdings from the custodial platform just prior to its financial collapse.
According to the legal filing submitted to Delaware's bankruptcy court, Electric Solidus, which operates as Swan's parent company, allegedly extracted more than $24.6 million in fiat currency, 11,994 Bitcoin (BTC) presently valued at approximately $923 million, about 5 million USDt (USDT) tokens and additional smaller quantities of various cryptocurrencies in the period preceding Prime Trust's August 2023 bankruptcy declaration.
Central to these accusations is an unnamed senior-level Prime Trust employee who simultaneously maintained a compensated consulting relationship with Swan through a side agreement established in July 2019, all while holding their position at the custodial company.
According to the allegations, four days prior to Prime Trust's scheduled meeting with Nevada state regulators on May 26, 2023, this executive purportedly initiated an encrypted communication channel with Swan CEO Cory Klippsten and configured the messaging platform to automatically erase all communications every 24 hours. The auto-delete functionality was allegedly disabled the following day after the regulatory meeting concluded, coinciding with Swan's withdrawal of more than 10,000 Bitcoin from Prime Trust's custody.
This legal action represents one component of a comprehensive campaign by Prime Trust's post-bankruptcy litigation trust to reclaim assets that were transferred away from the custodian during the final weeks before its financial collapse. The trust's position is that Swan exploited privileged insider intelligence to relocate its holdings in advance of other Prime Trust clients as the custodian's fiscal situation worsened.
Swan knew to transfer fiat and crypto from Prime immediately prior to Prime filing for bankruptcy to avoid catastrophic losses.
Court complaint
Cointelegraph reached out to Swan for comment, but did not receive an immediate response.
Swan allegedly emptied Prime Trust accounts
The legal filing additionally asserts that Swan suddenly transformed what had been a partial withdrawal of assets into a complete evacuation of all holdings, just one day prior to the Nevada regulatory meeting.
According to Slack message exchanges referenced in the court documents, Prime Trust personnel worked urgently to process the requests before the end of the business day.
The lawsuit claims that Prime Trust established an internal accounting ledger designated as "PT FBO Swan Customers" on May 25, representing an account without any prior existence, in an apparent effort to create the impression that Swan's assets had always been maintained in a distinct trust structure, which would have complicated efforts to recover the funds during bankruptcy proceedings.
In substance, however, those assets had not been and were not held in trust for the benefit of Swan's customers.
Court complaint
The plaintiff seeks asset recovery through both preferential transfer and actual fraudulent transfer provisions outlined in the Bankruptcy Code, and has requested that the court reject any subsequent claims Swan may file against the bankruptcy estate unless and until full restitution has been completed.