Swan Bitcoin Takes Legal Action Against Ex-Employees in High-Stakes Trade Secret Theft Case

Swan Bitcoin has initiated a lawsuit against former employees of its mining branch for allegedly stealing proprietary software and trade secrets to establish a rival company, Proton Management.

In a lawsuit filed on September 25 in a Los Angeles federal court, Swan claims that six of its ex-employees conspired to undermine its competitive position by stealing what the lawsuit refers to as the company’s “crown jewels.” This incident allegedly occurred during a pre-planned scheme dubbed “rain and hellfire,” aimed at taking control of Swan’s mining operations from within.

The complaint states that these former employees pilfered proprietary code for Swan’s mining monitoring software, along with thousands of confidential documents, shortly before their departures between August 8 and August 9. Additionally, the defendants are accused of recruiting key personnel and securing Swan’s business partners, notably Tether, which was alleged to provide “legal cover” for the activities of the new company.

Just days after the resignations, Tether replaced Swan with Proton in their mining agreement on August 12. The pair had also recently launched a managed mining service targeting institutional investors, aiming to scale up to 100 exahashes by 2026. This lawsuit poses a potential threat to those plans.

Swan’s CEO, Cory Klippsten, indicated that the company had been facing revenue challenges in its mining division. In July, he suggested that Swan might discontinue its managed mining operations and had been contemplating selling its mining business to Tether.

Swan contends that the stolen information has provided Proton with an unfair advantage in the highly competitive Bitcoin mining sector. The firm asserts it possesses evidence of the theft and subsequent cover-up attempts, leading to accusations of trade secret misappropriation, breach of contract, and aiding and abetting a breach of duty of loyalty.

Swan is seeking a jury trial to assess damages and has requested the return of the stolen equipment and confidential materials, in addition to a permanent injunction against the defendants.

Core Business Remains Strong

Despite this legal battle, Klippsten reassured stakeholders that Swan has enjoyed a profitable year, boasting a 132% year-on-year revenue increase. He emphasized that the ongoing situation does not impact the core business, as the mining division operates separately. Swan's revenue surge is attributed to new product launches, including Bitcoin Individual Retirement Accounts in collaboration with U.S.-based Equity Trust Company, enabling customers to manage Bitcoin within tax-advantaged retirement accounts.