Swan Bitcoin, a Bitcoin financial services firm, has filed a lawsuit against several former employees from its mining division, accusing them of stealing proprietary software to launch a rival business. According to a court filing on Sept. 25, these ex-staff members allegedly took Swan’s software code and then resigned to start their own Bitcoin mining company, Proton Management.
The lawsuit claims that Proton Management was formed as a “counterfeit competitor” to Swan, and that the former employees persuaded stablecoin issuer Tether, one of Swan’s key funding partners, to cut ties with Swan in favor of Proton. This, according to Swan, was an orchestrated effort to severely damage its ability to compete in the Bitcoin mining sector.
The “Rain and Hellfire” Plan
Swan’s attorneys allege the ex-employees devised a plan to “steal Swan’s mining business from the inside” and exclude the company from its joint venture with Tether. The plot, ominously referred to as “rain and hellfire,” reportedly involved the theft of trade secrets and proprietary information crucial to Swan’s Bitcoin mining operations.
Michael Holmes, Swan’s former Head of Business Development, and Raphael Zagury, its former Chief Investment Officer and head of mining, are identified as the key figures behind the plan. Zagury now serves as the CEO of Proton Management, while Holmes is described as the “ringleader” of the operation.
Sudden Resignations and Tether’s Switch
Swan claims it was “blindsided” when multiple employees resigned in quick succession on Aug. 8 and 9, shortly followed by a notice from Tether on Aug. 12, informing them that Proton would be replacing Swan in their mining partnership. Tether’s involvement, according to the filing, was meant to provide “legal cover” for Proton’s takeover of the mining business.
Swan launched its managed Bitcoin mining service for institutional investors in partnership with Tether in May 2024, with plans to reach 100 exahashes of computing power by 2026. However, by July, Swan’s CEO, Cory Klippsten, informed the community that the company might close its managed mining service due to revenue challenges.
Seeking Legal Recourse
In the lawsuit, Swan is requesting a permanent injunction to prevent Proton from further disrupting its business and asks that the court compel the former employees to return stolen equipment and confidential business materials. The firm also seeks damages to be determined at a jury trial.
Swan’s legal action underscores the growing tensions in the highly competitive world of Bitcoin mining, as companies vie for technological and market dominance. As of now, Proton Management and Tether have not responded to the allegations.
