In a significant legal development, Electric Solidus Inc., the company operating as Swan Bitcoin, is facing a $970 million lawsuit from the PCT Litigation Trust. The lawsuit, filed in the U.S. Bankruptcy Court for the District of Delaware, aims to recover digital assets and cash that were allegedly transferred out of Prime Trust just before its collapse in 2023.
According to court documents, the trust claims that Swan moved approximately 11,994 Bitcoin, over $24 million in cash, around $5 million in stablecoins, and more than 91,000 XRP from Prime Trust prior to the custodian filing for bankruptcy. The lawsuit argues that these transfers were made using non-public information, allowing Swan to avoid the financial turmoil that later affected other Prime Trust clients.
The complaint specifically highlights that a senior Prime Trust executive, who also served as a paid advisor to Swan, alerted Swan CEO Cory Klippsten before critical meetings with Nevada regulators. Swan then requested to move its entire business away from Prime Trust on May 25, 2023, just one day before the regulator meeting. This timing, the trust argues, was not coincidental and allowed Swan to act on insider knowledge.
Swan Bitcoin has responded to the allegations by asserting that customer assets held in trust accounts are not part of the bankruptcy estate. A company representative stated that these assets belong to individual customers and cannot be used to repay general unsecured creditors. Swan expects the courts to rule in its favor on this matter.
The dispute centers on the legal classification of the assets: whether they were owned by Swan, its customers, or should be returned to the Prime Trust estate for creditor distribution. The court will need to examine the custody agreements, the timing of the transfers, and the alleged use of insider information.
Prime Trust’s downfall began in June 2023 when Nevada regulators declared the company insolvent and unable to fulfill customer withdrawals. The custodian later filed for Chapter 11 bankruptcy, revealing that it had used customer funds to cover withdrawals since late 2021 and owed clients approximately $82 million in missing deposits and fiat currency. This new lawsuit against Swan adds another layer to the complex legal aftermath of Prime Trust’s failure, emphasizing ongoing concerns about crypto custody practices and the treatment of customer assets in bankruptcy proceedings.