A significant legal battle has emerged as the PCT Litigation Trust has filed a lawsuit against financial services firm Swan Bitcoin, seeking the recovery of nearly $1 billion in assets reportedly linked to the 2023 failure of Prime Trust. The lawsuit, lodged in Delaware Bankruptcy Court, contends that Swan Bitcoin utilized privileged insider information to avert substantial losses during the crisis surrounding Prime Trust.
The suit alleges that Swan Bitcoin’s actions allowed the firm to sidestep the financial turmoil that ensnared many customers of Prime Trust, a cryptocurrency custodian forced to shut down and file for bankruptcy due to severe debt issues. Earlier this year, Nevada regulators concluded that Prime Trust was unable to service its customers, leading to an involuntary Chapter 11 filing in August, which allegedly left it with liabilities of up to $82 million.
According to the complaint, Swan Bitcoin managed to transfer nearly $1 billion in assets shortly before the bankruptcy announcement, which included 11,992 Bitcoin, valued at approximately $917 million based on current market rates. The PCT Litigation Trust claims these assets are rightfully owed to the creditors of Prime Trust. The lawsuit argues that, unlike most customers, Swan converted its holdings to avoid catastrophic losses by leveraging insider knowledge about Prime Trust’s impending bankruptcy.
The filings detail that Swan Bitcoin may have taken precautionary measures to evade consequences tied to a standard 90-day preference period that could allow for the recovery of transferred funds. It suggests that upon receiving confidential information about Prime Trust’s dire situation, Swan swiftly moved to divest its assets to avoid the risk of substantial preference liability.
A critical facet of the case involves a senior executive at Prime Trust, who was also a compensated advisor to Swan Bitcoin, thereby facilitating access to critical non-public information. The lawsuit mentions that this connection allowed for encrypted communications between Swan’s CEO Cory Klippstein and the Prime executive, especially prior to key regulatory meetings.
Further illustrating its claims, the lawsuit lists specific assets alleged to belong to Prime Trust’s bankruptcy estate, which includes approximately $22.4 million in U.S. dollars, $5 million in dollar-backed stablecoins, and around 91,444 XRP tokens, valued at roughly $126,000.
In response to the allegations, a representative for Swan Bitcoin asserted that customer assets held in trust accounts by Prime Trust are protected from being claimed by unsecured creditors. They argue that the assets acquired by Swan Bitcoin were never part of the estate and that the firm expects the legal proceedings to substantiate its stance.
This lawsuit not only highlights the intricacies and potential conflicts of interest within the cryptocurrency sector but also underscores the far-reaching implications of insider information and asset management during times of financial instability.
