Swan Bitcoin Claims Former Employees, Tether Conspired to Steal Its Mining Business

Bitcoin company Swan alleged in a lawsuit filed Wednesday that ex-employees of the company, including former executives, conspired to execute a “rain and hellfire” plan to usurp the firm’s Bitcoin mining business.

The company further alleges that the scheme was aided by Tether, the cryptocurrency giant responsible for issuing the industry's largest stablecoin by market capitalization, USDT.

The complaint, filed in the U.S. District Court for the Central District of California, alleges that the former employees stole “highly proprietary code” from Swan’s Bitcoin mining monitoring software, in addition to stealing its vendors and business partners. The employees conspired to resign en masse and create a competing company called Proton Management, Swan Bitcoin alleges.

“The evidence of Defendants’ brazen theft is overwhelming,” Swan’s lawyers said in the complaint. “[The former employees] were stealing the crown jewels from Swan’s Bitcoin mining business.” Representatives for Tether and Proton did not immediately respond to Decrypt's requests for comment.

Swan’s lawyers alleged that one of the Bitcoin firm’s former executives, Swan vice president of institutional operations and research Brett Hiley, downloaded more than 300 confidential documents from Swan’s Google Drive, including mining inventory and performance data sheets, as well as a log of analyses of all the firm’s mining sites and operations. 

Proton’s employees also allegedly solicited Swan’s mining personnel, in addition to appropriating Swan’s financing partner Tether for its own operations in an attempt to “irreparably harm Swan’s ability to compete in the market,” the complaint states. The scheme, in part, hinged on Tether delivering Swan with a "default notice" that would provide the "legal cover" for the hostile takeover, Swan alleges.

Proton CEO Raphael Zagury (then-chief investment officer at Swan) made a concerted effort to “sow dissent and chaos” at Swan in an attempt to galvanize Swan employees to defect from the company, according to the lawsuit. From there, Zagury and his alleged co-conspirators attempted to force Swan CEO Klippsten to resign and plotted to ensure that Swan would accept “wind down capital” from Tether, the Bitcoin firm’s lawyers said.

Just four days after the employees resigned from Swan, including Zagury—who also served as the company's head of mining, "Tether, Swan’s funding partner in its mining operation, notified Swan that Defendant Proton would be taking over 'day-to-day' Bitcoin mining management in their joint venture," the lawsuit states.

Swan is still investigating its former executives and employees’ alleged collection of its proprietary data and trade secrets, in addition to the circumstances of their resignations, the complaint shows. A representative for Swan declined Decrypt's request for comment.

The Bitcoin firm is seeking a permanent injunction against Proton that would prevent the company from further disrupting Swan's mining business and is asking the court to compel the former employees to return stolen equipment and "confidential material." Swan has asked the court for a jury trial and for damages to be determined at trial.

Editor's note: This story was updated after publication to include additional details regarding Swan's lawsuit.