Swan Bitcoin Sues Ex-Employees Over Alleged Mining Business Heist

Swan Bitcoin has initiated a lawsuit against Proton Management Ltd. and six former employees on September 25, 2024, accusing them of a coordinated theft of its billion-dollar bitcoin mining technology with alleged assistance from Tether, a former financial partner.

Swan has filed suit in Los Angeles federal court against six former employees, alleging they engineered a plot to redirect its billion-dollar Bitcoin mining operations to the newly formed Proton Management Ltd. 

Described in legal filings as a “rain and hellfire” strategy, the plot unfolded over two months and culminated on August 8, 2024, when key employees, including Raphael Zagury, Swan’s former Chief Investment Officer and now CEO of Proton, resigned from the company along with several others. Proton Management was incorporated in the British Virgin Islands on August 2, 2024, and all the defendants joined Proton. 

According to Swan, this mass resignation was a calculated plot to destroy Swan’s operational backbone, strategically timed to coincide with internal blueprints laid out by Zagury. These plans, as per the lawsuit, were explicitly designed to clone Swan’s lucrative mining operations at Proton using misappropriated trade secrets and insider knowledge.

Source: Swan Complaint Lawsuit

Swan has made serious allegations against Tether, but it’s not named as a defendant in this lawsuit. According to Swan, Tether played a pivotal role by backing the defections. Tether had previously funded Swan’s bitcoin mining operations in Tasmania, Australia, in 2023. But the stablecoin giant began encouraging Swan employees to move to Tether or any other organization in late June, the suit said. 

An advisor for Tether, Zach Lyons, allegedly told Swan employees that “Tether no longer valued the company and suggested they could continue their work at another firm, or Tether”. 

By mid-July, Zagury allegedly began creating chaos within the company. According to the lawsuit, Zagury undermined Swan’s CEO Cory Klippsten, and influenced Swan’s employees to leave. As a result, Swan was forced to cancel its IPO plans by July 22, shut down its managed bitcoin mining unit, and lay off 45% of its staff.

On August 9, just one day after the mass resignations, Tether’s legal counsel served Swan with a “Notice of Event of Default,” accusing Swan of breaching their funding agreement. According to Swan, this was part of the broader plan, allowing Tether to replace Swan with Proton in its bitcoin mining agreement. 

Proton was built on stolen trade secrets and proprietary information from Swan, replicating its entire business model, the lawsuit said. Swan alleged that this plan was made to dismantle the company’s competitive stronghold. 

“Defendants were stealing the crown jewels from Swan’s Bitcoin mining business, they executed their pre-planned scheme to solicit Swan’s mining personnel; usurp Swan’s funding arrangement; use Swan’s financing partner, cryptocurrency giant Tether, for “legal cover” for their misdeeds; and irreparably harm Swan’s ability to compete in the market”, Swan said in its lawsuit.

Swan’s legal representatives at Gibson, Dunn & Crutcher, led by partners Harris M. Mufson and Ilissa Stacy Samplin, are confident in reclaiming their client’s rights. ‘The theft of Swan’s trade secrets and confidential information is staggering,’ said Mufson. ‘We are committed to fully vindicating our client’s rights.’ 

Swan Bitcoin continues its legal fight and is seeking legal protections against Proton Ltd. and its former employees to maintain its competitiveness in the market.