Prime Trust bankruptcy trust sues Swan Bitcoin for $1 billion in assets
Quick Look
Prime Trust's bankruptcy trust has sued Swan Bitcoin, alleging the crypto firm used insider knowledge from a senior executive to withdraw nearly $1 billion in assets, including Bitcoin and cash, days before Prime Trust's collapse in August 2023.
AI-generated summary
Why It Matters
Prime Trust, a cryptocurrency custodian, filed for bankruptcy in August 2023. Prior to its collapse, significant assets were withdrawn by customers. The post-bankruptcy litigation trust is attempting to recover these assets.
The post-bankruptcy trust for Prime Trust has filed suit against Swan Bitcoin, alleging the Bitcoin services company exploited insider knowledge to pull nearly $1 billion in assets from the custodian days before its collapse.
The complaint, filed in Delaware bankruptcy court, accuses Electric Solidus, the corporate entity behind Swan, of receiving over $24.6 million in cash, 11,994 Bitcoin (BTC) currently worth around $923 million, roughly 5 million USDt (USDT) and smaller amounts of other digital assets before Prime Trust's August 2023 bankruptcy.
At the center of the allegations is an unidentified Prime Trust senior executive who, while working at the company, was also a paid adviser to Swan through a side arrangement dating back to July 2019.
Four days before Prime Trust met with Nevada regulators on May 26, 2023, the executive allegedly opened an encrypted chat with Swan CEO Cory Klippsten and set messages to auto-delete every 24 hours. The feature was allegedly turned off the day after the meeting, when Swan withdrew more than 10,000 Bitcoin from Prime Trust.
Source: CourtListener
The lawsuit is part of a broader effort by Prime Trust’s post-bankruptcy litigation trust to recover assets transferred out of the custodian in the weeks leading up to its collapse. The trust alleges Swan used insider access to move funds ahead of other customers as Prime Trust’s financial condition deteriorated.
“Swan knew to transfer fiat and crypto from Prime immediately prior to Prime filing for bankruptcy to avoid catastrophic losses,” the complaint wrote.
Cointelegraph reached out to Swan for comment, but did not receive an immediate response.
Related: House Committee pushes Trump to fill CFTC seats as crypto regulation ramps up
Swan allegedly emptied Prime Trust accounts
The complaint further alleges that Swan abruptly expanded a partial asset transfer into a full evacuation of all funds, one day before the Nevada meeting.
Prime Trust staff scrambled to comply before the close of business that day, according to Slack communications cited in the filing.
The complaint alleges Prime created an internal ledger labeled “PT FBO Swan Customers” on May 25, an account that did not previously exist, to make it appear Swan’s funds had always been held in a separate trust, which would have made them harder to claw back in bankruptcy.
“In substance, however, those assets had not been and were not held in trust for the benefit of Swan’s customers,” the suit claims.
The plaintiff is seeking recovery under preferential transfer and actual fraudulent transfer provisions of the Bankruptcy Code, and is asking the court to disallow any future claims Swan might assert against the estate until restitution is made.
What to Watch
AI outlook — possibilities, not facts
The court will likely order Swan Bitcoin to return some or all of the disputed assets to the Prime Trust bankruptcy estate.
Likely · Within months
The lawsuit could lead to increased regulatory scrutiny of crypto custodians and their relationships with insiders.
Very likely · Within months
Open Questions
- What is the identity of the senior executive involved?
- What was the exact nature of the side arrangement between the executive and Swan?
- Will Swan Bitcoin be able to prove the assets were legitimately held and not subject to clawback?
- What is the total amount of assets that the trust is seeking to recover from Swan?
