Nikolas Sargeant
Swan Bitcoin has initiated legal action against several former employees from its mining division, claiming they misappropriated proprietary software and trade secrets to establish a competing firm, Proton Management.
In a lawsuit submitted on September 25 to a federal court in Los Angeles, Swan accused six ex-employees of conspiring to undermine the company's competitive standing by stealing what the complaint referred to as the “crown jewels” of its mining operations.
Founded in 2019, Swan Bitcoin initially focused on financial services for investors and expanded into the mining industry with the launch of Swan Mining in 2023. The lawsuit alleges that the defendants engaged in a coordinated scheme, dubbed “rain and hellfire,” to undermine Swan's mining business from within.
According to the allegations, these former employees took proprietary code related to Swan's mining monitoring software and thousands of confidential documents just before their resignations between August 8 and August 9.
Additionally, the lawsuit claims that the defendants solicited key personnel and acquired Swan’s business partners, including the stablecoin issuer Tether, which was allegedly involved to provide “legal cover” for the actions of the competing company.
Notably, Tether replaced Swan with Proton in their mining agreement on August 12, only days after the employees left Swan.
The two companies recently launched a managed mining service aimed at institutional investors, with plans to scale up to 100 exahashes by 2026. However, this lawsuit could potentially hinder those ambitions.
The complaint indicates that Swan has faced revenue challenges in its mining division. CEO Cory Klippsten informed stakeholders in July that the firm might discontinue its managed mining service, and around that same period, Swan considered selling its mining operations to Tether.
Swan contends that the stolen information has given Proton an unfair edge in the competitive Bitcoin mining arena. The firm asserts it has proof of the theft and subsequent cover-up attempts, filing the lawsuit to safeguard its interests by accusing the defendants of misappropriation of trade secrets, breach of contract, and complicity in violating duty of loyalty.
Swan is seeking a jury trial to assess damages and has requested the return of stolen equipment and confidential documents, along with a permanent injunction against the defendants.
Core Business Remains Stable
Despite the ongoing legal battle, Klippsten reassured stakeholders that the core financial services of Swan Bitcoin have remained profitable, with a 132% year-on-year revenue increase. He emphasized that the recent developments do not impact the main business, as the mining segment is “separate and segregated.”
This revenue growth has been bolstered by new product launches, including the introduction of Bitcoin Individual Retirement Accounts in partnership with Equity Trust Company, enabling customers to manage Bitcoin within tax-advantaged retirement accounts.
