Swan Bitcoin has filed suit against a group of former employees and consultants, alleging they “hatched and executed a ‘rain and hellfire’ plan” to steal its lucrative bitcoin mining business with the help of Tether, Swan Bitcoin’s one-time ally and fundraising partner.
The lawsuit accuses six employees of looting Swan’s trade secrets – including “highly proprietary code,” hash-rate optimization techniques, and financial models – and using them to create an “illegal facsimile” of Swan’s bitcoin mining operation called Proton Management. After two months of pilfering and planning, the lawsuit claims, the coup-de-grace came on Aug. 8, when they and several other employees resigned “near-simultaneously” to join Proton.
The defendants did all of this, according to Swan, with the go-ahead from Tether. Though Tether is not a named defendant in the suit, a spokesperson for the company has denied any and all implications of wrongdoing.
The stablecoin giant had previously funded Swan’s bitcoin mining operation in Tasmania, Australia in 2023 and, by February, had entered into talks with Swan for another funding round. According to the suit, an advisor for Tether – Zach Lyons of Marlin Capital Partners – told Swan that Tether would lead Swan’s series C fundraising round with a $25 million investment, valuing Swan’s business at a whopping $1 billion.
Things were looking good for Swan, which had aspirations of going public. By July, according to the lawsuit, it was mining one out of every 50 bitcoins worldwide. Tether’s CFO Giancarlo Devasini seemed to be pleased with Swan’s CEO, Cory Klippsten, allegedly telling him “on multiple occasions that in his opinion Klippsten was the best CEO in the space.”
But, while praising Klippsten and pledging funding, Swan says Tether was double-dealing. According to the suit, Lyons began taking secret meetings with Swan’s former head of mining Raphael Zagary in (who is not named as a defendant in the suit) and other employees in late June, telling them that Swan had “no value” to Tether and suggesting that Swan’s employees could potentially leave Swan and go to Tether or another operator and “keep doing what [they’re] doing.”
In a July 11 meeting, Lyons allegedly told Zagary and former Swan Investment Director Santhiran Naidoo that Klippsten “has to realize [Tether] can take away [Swan’s mining business] tomorrow.”
With the tacit blessing of Tether, as well as an alleged agreement to provide “legal cover” for the coup, Swan claims, in mid-July Zagary began to “sow dissent and chaos at Swan, undermine Klippsten, and influence Swan’s consultants and employees to leave Swan”. The $25 million funding commitment from Tether, it became apparent, would no longer be coming.
The chaos took its toll on Swan, which by July 22, announced that it was dropping its IPO plan, shut down its managed mining unit and laid off some 45% of its staff. Its valuation plummeted, according to the suit, and it was forced to go back to the market seeking investment at a significantly lower valuation.
On Aug. 8, the defendants quit their jobs at Swan en masse, which Swan’s lawyers claim “blindsided” Swan (despite the fact that defendants were allegedly using their Swan email addresses and corporate Zoom accounts to coordinate with each other and Tether).
The next day, Friday, Aug. 9, Tether’s counsel served Swan with the “legal cover” it had allegedly promised the defendants – according to the lawsuit (which was improperly redacted), this came in the form of a “Notice of Event of Default” claiming that Swan had breached their funding agreement, 2040 Energy, with Tether because it was unable to “maintain the personnel necessary” to conduct business properly.
The following Monday, Swan says, Klippsten was “forced to resign” as CEO of 2040 Energy. The same day, Tether’s counsel allegedly informed Swan it had engaged the services of Proton Management – an entity that claimed “it can supply the services of certain former employees of Swan.”
“With that, as Swan would later learn, Defendants’ and the Swan conspirators’ coup was complete,” Swan’s lawyers wrote. “Defendant Proton, created by Defendant [Alex] Holmes, led by CEO Zagury and CIO Defendant Naidoo had created an illegal facsimile of Swan’s Bitcoin mining business.”
Ashley Ebersole, general counsel for 0x and a former U.S. Securities and Exchange Commission (SEC) attorney, told CoinDesk that Swan’s complaint “seems to indicate that Tether is a potential bad actor here, but there are no legal claims made against it.”
“The Complaint is pretty thin on evidence of actual wrongdoing by Tether and it’s not named as a defendant,” Ebersole added. “Maybe that’s because there isn’t evidence to support any claims against Tether, but complaints can always be amended if anything is uncovered.
A spokesperson for Tether told CoinDesk the company is “aware of recent allegations made in a lawsuit that mentions a subsidiary of Tether dedicated to proprietary mining and other investments.”
“While Tether is not a named defendant in the case, we have taken note of the claims and deny any implications of wrongdoing. Tether remains committed to enabling financial freedom, educational empowerment, energy sustainability, and data sovereignty. We believe our operations and conduct align with these values. As this is an ongoing legal matter, we will refrain from providing further comment at this time. We will continue to monitor the lawsuit and provide updates as appropriate. In the meantime, Tether’s business operations continue as usual,” the spokesperson added.
Swan’s suit is seeking permanent injunctions against the named defendants, as well as restitution, disgorgement, and punitive damages against Proton.