Key Takeaways:
Financial services firm Swan Bitcoin is facing a lawsuit for nearly $1 billion filed by the bankruptcy estate of Prime Trust, which alleges Swan used insider information to pull assets from the crypto custodian just before its collapse in 2023.
"Swan—unlike most of Prime’s customers—did not suffer significant losses because Swan had insider, non-public information," the complaint filed by PCT Litigation Trust in Delaware Bankruptcy Court said. "Swan knew to transfer fiat and crypto from Prime immediately prior to Prime filing for bankruptcy to avoid catastrophic losses.”
The suit seeks the return of 11,992 Bitcoin, currently valued at over $900 million, alongside approximately $24 million in cash and $5 million in stablecoins. The trust alleges these transfers occurred within the 90-day preference period before Prime Trust filed for Chapter 11 bankruptcy in August 2023.
The case, assigned to Judge J. Kate Stickles, will test whether assets held by a crypto custodian for a partner are considered property of the bankruptcy estate. Swan contends the funds were segregated customer assets, a claim the trust disputes based on how assets were commingled, setting up a critical legal battle with implications for other former Prime partners like Strike and Galaxy Digital.
The 94-page complaint alleges that a senior executive at Prime Trust, who also served as a paid advisor to Swan, provided non-public information to Swan CEO Cory Klippsten via encrypted messages starting on May 22, 2023.
Just days later, on May 25, 2023, Swan formally requested to move its entire business off the Prime Trust platform. This was shortly before Prime met with Nevada regulators who would ultimately shut the firm down in June 2023 for being unable to service customer withdrawals.
In a statement, Swan Bitcoin has argued that the assets in question were customer funds held in distinct trust accounts. "Customer assets held by a trust company are not available to general unsecured creditors, and we expect the courts to say so,” a representative for the firm told Blockspace.
The PCT Litigation Trust was created to pursue litigation and distribute assets to creditors of Prime Core Technologies. The outcome of its clawback case against Swan could influence similar actions it has filed against other former partners of the failed custodian.
This article is for informational purposes only and does not constitute investment advice.
