The post-bankruptcy trust representing Prime Trust’s creditors has taken legal aim at Swan Bitcoin, filing a suit in Delaware bankruptcy court alleging the Bitcoin custodian exploited insider access to move roughly $1 billion in assets from Prime Trust ahead of its August 2023 collapse.

The complaint, submitted by the Prime Trust litigation trust, asserts that Electric Solidus—the corporate entity behind Swan Bitcoin—received more than $24.6 million in cash, 11,994 BTC (valued at about $923 million at the time of filing), roughly $5 million in USDT, and smaller amounts of other digital assets before Prime Trust filed for bankruptcy. Central to the allegations is a Prime Trust senior executive who, while employed at Prime, also served as a paid adviser to Swan in 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 Chief Executive Cory Klippsten and set messages to auto-delete every 24 hours. The feature was reportedly turned off the day after the regulatory meeting, when Swan withdrew more than 10,000 BTC from Prime Trust.

The lawsuit forms part of a broader effort by Prime Trust’s post-bankruptcy litigation trust to recover assets moved out of the custodian in the weeks leading up to its collapse. The filing argues Swan leveraged insider access to shift assets ahead of Prime Trust’s deteriorating financial condition, effectively prioritizing its own holdings over other customers.

“Swan knew to transfer fiat and crypto from Prime immediately prior to Prime filing for bankruptcy to avoid catastrophic losses,” the complaint states.

Cointelegraph reached out to Swan for comment, but did not receive an immediate response.

Key takeaways

The Prime Trust litigation trust accuses Swan Bitcoin of using insider access to drain assets from Prime Trust in the run-up to its bankruptcy.
Assets alleged to have moved include 11,994 BTC (approximately $923 million at filing time), plus cash and USDT, totaling around $1 billion in value referenced by the complaint.
An unnamed Prime Trust executive with ties to Swan allegedly coordinated pre-bankruptcy transfers, including an encrypted chat that auto-deleted messages for a period.
The filing claims an internal ledger created shortly before the Nevada regulator meeting, titled “PT FBO Swan Customers,” was designed to obscure that Swan’s funds were not actually held in a separate trust for Swan’s customers.
The litigation seeks to recover assets under preferential transfer and fraudulent transfer provisions of the Bankruptcy Code and seeks to disallow future claims until restitution is made.

Insider leverage and the timing of asset moves

The core accusation centers on a Prime Trust executive who simultaneously served Swan as a paid adviser, creating a potential conflict of interest as Prime Trust’s financial health weakened. The filing describes a sequence in which, just days before a regulatory encounter in Nevada, an encrypted channel with Swan’s leadership enabled accelerated transfers. The purported purpose, according to the complaint, was swift asset relocation to avoid losses as Prime Trust faced mounting pressure.

Those transfers culminated in a notable withdrawal of more than 10,000 BTC shortly after the Nevada meeting, a move the suit characterizes as part of a broader evacuation of customer assets. Slack communications cited in the filing allegedly show Prime Trust staff scrambling to comply with requests or directives as the day closed, underscoring the chaotic context in which the transfers occurred.

Internal ledgers and the argument over asset custody

A focal point of the allegations is the claim that Prime Trust created an internal ledger labeled “PT FBO Swan Customers” on May 25, a record that did not exist previously. The suit contends this ledger gave the appearance that Swan’s assets were held in a separate, customer-specific trust, a structure that would complicate any future clawback efforts in bankruptcy. In substance, the complaint argues, those assets were not actually held in trust for Swan’s customers, suggesting an attempt to mislead creditors and regulators about asset custody during a period of financial stress for Prime Trust.

What the case seeks and potential implications

The Prime Trust trust seeks relief under the Bankruptcy Code’s preferential transfer and actual fraudulent transfer provisions. The plaintiffs also request a court order disallowing any future claims Swan might assert against the estate until restitution is made. If successful, the action could set a precedent for how transfers involving crypto custodians are treated in bankruptcy, with potential ripple effects for other platforms that rely on custodial arrangements during distress.

The case also spotlights broader questions about governance, insider relationships, and the potential for rapid asset movement in the crypto custody landscape. As regulators increasingly scrutinize custody practices and the pathways assets can take during financial duress, outcomes from this litigation may influence risk management standards and disclosure requirements across the sector.

Closing perspective

As the case unfolds, observers will be watching how the court addresses the credibility and scope of the transfers alleged in the filing, and whether restitution can be secured for Prime Trust’s creditors. The episode underscores the ongoing tension between rapidly evolving crypto custody models and traditional bankruptcy frameworks, raising questions about best practices for safeguarding customer funds when a custodian nears insolvency.