In a significant legal development, Electric Solidus, Inc., operating under the name Swan Bitcoin, has been named as a defendant in a lawsuit filed in Delaware Bankruptcy Court. The suit seeks to recover nearly $1 billion in cryptocurrency connected to the 2023 collapse of Prime Trust, a crypto custodian that was forced to shut down due to substantial debt and regulatory scrutiny.
The lawsuit, initiated by PCT Litigation Trust, aims to address the distribution of assets and the pursuit of litigation following the collapse of Prime Core Technologies. According to the suit, Swan Bitcoin reportedly avoided significant financial losses that many other clients of Prime faced, thanks to what is described as “unrivaled access to inside information.” The suit contends that Swan acted on insider knowledge to transfer its assets from Prime just before the firm’s bankruptcy filing, thus preventing what could have been catastrophic losses.
The filing claims, “Swan—unlike most of Prime’s customers—did not suffer significant losses because Swan had insider, non-public information,” indicating that Swan was privy to the impending bankruptcy and moved swiftly to mitigate its potential exposure.
Prime Trust’s troubles began to escalate in June 2023 when Nevada regulators intervened, determining that the company was in troubled financial straits and unable to meet its obligations to clients. By August of the same year, Prime Trust filed for Chapter 11 bankruptcy protection, revealing a financial deficit that included approximately $82 million in missing fiat deposits owed to customers.
Before the bankruptcy declaration, Swan successfully transferred nearly $1 billion in assets, which included 11,992 Bitcoin, valued around $917 million at current prices. This amount is claimed to belong to Prime Trust debtors. Typically, funds moved within a 90-day window prior to bankruptcy may be recovered by the bankruptcy estate. However, the lawsuit suggests that Swan took strategic measures to avoid potential recourse during this preference period.
The suit further highlights Swan’s relationship with a “senior executive” at Prime Trust, who was also serving as an outside advisor to Swan. This executive allegedly facilitated access to sensitive information, including details about upcoming regulatory meetings. One notable instance occurred on May 25, 2023, just before a pivotal meeting with Nevada’s Financial Institutions Division, when Swan notified Prime of its intent to transfer its entire business relationship from Prime.
The lawsuit outlines specific exposure for Swan, detailing around $22.4 million in USD, $5 million in dollar-backed stablecoins, and 91,444 XRP, valued at approximately $126,000. A representative for Swan Bitcoin emphasized that assets held in trust accounts for customers should not be available to general unsecured creditors, expressing confidence that the court will uphold this perspective.
While Swan Bitcoin’s representatives have commented on the suit, they did not provide an immediate response to inquiries regarding the lawsuit’s broader implications. As the case unfolds, it underscores the complexities and challenges facing the cryptocurrency sector, particularly amid regulatory and financial scrutiny.
