Tether alleges breach of contract in lawsuit with Swan

Editor’s note (5:44pm EST): An earlier version of this article mischaracterized legal and business documents regarding Swan and other counterparties. We erroneously reported that legal documents from Tether’s lawsuit against Swan and UCC filings Blockspace obtained indicated that Swan took financing from Ripple. Those documents did not provide proof of financing. The error resulted from Blockspace misreading and misunderstanding the documents. Upon further review, the legal documents allege that Swan “[entered] into an unconditional secured guaranty with Ripple Labs Inc.” Blockspace attained UCC filings that list Ripple as a secured party and Swan as debtor, but these do not prove Ripple financed Swan.

• Stablecoin juggernaut Tether says Swan breached its contract for 2040 Energy, the companies’ bitcoin mining joint venture.

• The allegations are part of a lawsuit against Swan in U.K. court, which it filed in January 2025. The court dismissed certain injunctions Tether requested in the suit on Wednesday.

• Swan sued former mining employees in September 2024 in a California court.

Newly unveiled court documents allege Bitcoin financial services firm Swan Bitcoin breached contract in its Bitcoin mining venture, 2040 Energy, with stablecoin giant Tether, including allegedly "entering into an unconditional secured guaranty with Ripple Labs Inc ... pursuant to which Ripple obtained a first priority continuing security over Swan’s 2000 shares in 2040 Energy."

In public, Cory Klippsensten, the CEO of Swan Bitcoin, regularly bashed Ripple Labs, the bete noire of his fellow Bitcoin maximalists.

In posts on X, Klippsensten called XRP, the cryptocurrency associated with Ripple, a  “blatantly obvious, nefarious ponzi scam” and referred to the company’s co-founder Chris Larsen as “anti-human.” 

According to Tether’s initial argument filed January 13, 2024 in its lawsuit against Swan in London’s High Court of Justice, Swan “entered into an unconditional secured guarantee with Ripple Labs Inc.” on March 28, 2024. 

Read more: Tether sues Swan Bitcoin in ongoing bitcoin mining dispute

Tether alleges that Swan used its stake in 2040 Energy, the two companies’ joint mining venture, as collateral for the unconditional secured guarantee. In so doing, Swan breached its contract with Tether, the latter claims, adding that Ripple is a direct competitor to Tether since it launched a stablecoin in December 2024. 

“Ripple filed a UCC-1 and UCC-3 financing statement against Swan on/around 1 April 2024, thereby encumbering the shares,” the lawsuit claims.

Blockspace attained three Uniform Commercial Code (UCC) Financing Statements from the Delaware Secretary of State that involve Swan and Ripple as related parties. The first, a UCC-1 Financing Statement dated April 1, 2024, lists Electric Solidus Holdings LLC (Swan’s legal entity name) as the statement’s debtor and Ripple Labs Inc. as the secured party. 

The UCC’s “collateral description” section includes “[a]ll assets of the debtor including, without limitation, the following: All Accounts and accounts receivable; Inventory; Contract Rights; Instruments; Deposit Accounts; General Intangibles; Letter of Credit Rights, Payment Intangibles, Supporting Obligations, Investment Property; Equipment; Goods; Intellectual Property; Securities…”

Cornell Law describes “a UCC Financing Statement (usually called a UCC-1 Form) [as] a form that creditors file with states in which they have a security interest in a debtor’s personal property.” A company typically files these forms with a state’s Secretary of State and they serve as a public notice that the company has a claim to specific collateral.  However, the UCC filing is not sufficient to prove a financial transaction occurred.

On September 9, 2024, a UCC-3 form was filed to amend the original April 1 UCC filing (UCC-3 forms are used to amend a UCC1 file). The amended filing states that Swan’s 2040 Energy shares “shall be excluded from the Collateral” for the agreement. This clause appears under the heading “collateral change” with a checked-off box next to the words “delete collateral.”

Another UCC-3 filing dated October 31, 2024 states that the financing agreement was terminated. Swan did not respond to Blockspace’s request for comment regarding the original UCC and the exact nature of the agreement.

“Due to an NDA, there’s nothing we can say regarding Ripple,” a Swan representative told Blockspace. Ripple did not respond to questions for comment by press time.

“Swan strongly refutes the allegations made against it in the United Kingdom, but does not consider it appropriate to comment on the substance of those allegations while the matter is before the Court. It will address those matters through the Court process as appropriate,” Leo Kitchen, a partner at Swan’s legal counsel, Quinn Emanuel, told Blockspace.

Tether poured $408 million into 2040 Energy 

At the center of the dispute is 2040 Energy, a bitcoin mining joint venture that Swan and Tether established in June 2023. According to the suit, the joint-venture’s 10,000 shares are owned by Tether (7,900 shares), Swan (2,000), and media personality Max Keiser (100). Interestingly, Tether’s suit states that Keiser brokered the original relationship between Swan and Tether.

Tether originally invested $95 million into the business via its subsidiary, Zettahash, in July 2023. By June 2024, Tether had poured $408.22 million into 2040 Energy, by which point it transferred all of its shares in the joint venture from Zettahash to the Tether parent company. According to Tether’s lawsuit, Tether and Swan structured 2040 Energy so that Swan would manage the mining operations while Tether provided funding. 

Swan would not be entitled to revenue from the venture until Tether recouped its invested capital, a condition that Swan acknowledged in a July 2024 investor letter reviewed by Blockspace. 

Read more: New filings raise questions about mining ownership in Swan lawsuit

Court rebuffs Tether’s injunctions, while other breach of contract claims are outstanding

Swan fired the first legal salvo in this multi-case dispute in September 2024 when it sued former employees – but not Tether or 2040 Energy – for allegedly stealing proprietary business information after they left Swan to form Proton Management, a company that currently manages the 2040 Energy bitcoin mining business for Tether. In documents for both lawsuits, the Proton Management team cited lack of confidence and distrust in Swan leadership, as well as financial troubles, as their motivation for quitting the company.

Read more: Swan Bitcoin sues former employees, alleges theft of bitcoin mining business

Tether argued in the U.K. case that Swan’s California suit violates an exclusive jurisdiction clause for the U.K. in the 2040 Energy shareholder agreement and sought an injunction to stay the California proceedings. Swan argued its lawsuit was levied against its former employees, not 2040 Energy nor Tether, so the exclusive jurisdiction clause doesn’t apply. 

As reported by the Financial Times, the court ruled against Tether’s interim anti-suit injunction to freeze the California lawsuit on February 26.

“We are pleased that the court has taken the decision not to grant the injunctions sought by the Claimants, which leaves the way clear for Swan to continue to pursue vindication of its rights against its former employees and consultants, and Proton, in California,” Kitchen told Blockspace.

Tether’s U.K. case also sought an injunction against $33.1 million (332.6 BTC and $5 million in USDT and USD) assets held in BitGo accounts, of which “2040 Energy is the beneficial owner,” the suit claims. 

Tether claimed that the account in question “unbeknownst to [Tether]...had been opened for 2040 Energy as a separate ‘instance’ of Swan’s contract with BitGo and, for some of the wallets, the only authorised signatories were Swan representatives.”

The February 26 decision also dismissed the BitGo injunction, stating that “the Defendant [Swan] … transferred control of the BitGo Accounts to the Second Claimant [2040 Energy]” at an unspecified date. The judge also ordered that Tether must pay Swan £90,000 in legal fees related to the injunction.

"We are glad that Swan has now belatedly agreed to provide satisfactory undertakings to the Court, with the result that the injunction sought was no longer required. Tether will continue to ensure its rights are properly protected at every stage of the legal process,” a Tether spokesperson told Blockspace.

In another allegation of Swan’s breach of contract, Tether alleges that Swan incorporated two companies Corner Energy Ltd. in August 2023 and Corner Norway AS in February 2024, to conduct business for 2040 Energy mining projects without Tether’s knowledge. 

From August 2023 on, Tether claims, these two companies entered into hosting and business agreements for sites in Norway, Texas, Montana, Ohio, and New York. Tether claims Swan incorporated and conducted business under Corner Energy and Corner Norway in a breach of the 2040 Energy shareholder agreement but that these companies still fell under 2040 Energy’s purview. 

Between November 2023 and April 2024, Tether claims that Swan prepared investment memos for $315.4 million in funding to purportedly expand mining operations to global sites and further develop its flagship DAME facility in Tasmania, Australia. 

Alleged money problems, and how the joint venture soured

Tether claims that its business relationship with Swan began to atrophy in August 2023, when Klippsten approached Zachary Lyons, Tether’s financial advisor, for funding. 

The lawsuit alleges that Swan “was struggling with cashflow issues” and was seeking another round of financing. Lyons believed the valuation Swan attributed to itself was too high, but Tether financed a $16.25 million convertible note in October 2023, the suit reads. Around the same time, Tether claims that Swan dipped its hands into 2040 Energy cash in late 2023 to use for its own business, reimbursing the funds two days later.

A few months after, Swan began shopping around to raise $100-125 million, the suit claims. Klippsten allegedly requested Tether to lead the round, to which it declined. Incidentally, Swan argued in its September 2024 suit that Tether’s refusal to invest derailed its Series C raise.

Tether argues that, when engaging with investors for fundraising, Klippsten attempted to present 2040 Energy revenue as its own revenue:

Mr Klippsten wanted to improve the optics of Swan’s financial standing so that he could represent to investors that Swan’s revenues were greater than they were. He attempted to consolidate the revenue from 2040 Energy into Swan’s own financials and referred to this accounting construct as “Swan Mining”. In fact, Swan did not have any mining business (and was prohibited from doing so by clause 7 of the [shareholder agreement]) and its auditors prevented it from consolidating the revenue in this way

A summer 2024 Swan investor deck for the Series C shows that the mining business earned $84 million in the first half of 2024, but the July 2024 investor letter stipulates that Swan is not entitled to this revenue. 

In an attempt to earn cash flow from the mining operations earlier than originally contracted, Tether claims Klippsten proposed a new company, 2140 Energy, in February 2024. “This proposal arose in the context of several other proposals made to Tether, through which Mr Klippsten hoped to improve Swan’s cashflow,” Tether’s suit reads. 

2140 Energy allegedly would have established a new business, Swan Managed Mining. Both Tether and Swan’s lawsuits claim that no formal agreement was ever inked to create this new entity. Even so, Swan advertised the launch of Swan Managed Mining to its X followers in May 2024, with the goal of deploying 100 EH/s by the end of 2026 (for reference, the entire Bitcoin network rests at roughly 800 EH/s at the time of writing).

A few months later in July 2024, Swan laid off 45% of its staff and scrapped plans for an IPO. Klippsten cited lack of revenue from the mining business as one of the primary catalysts behind the shakeup.

“Swan is unlikely to continue with our Managed Mining business in the near term. Without the expectation of significant near-term revenue from our Managed Mining unit, we are pulling our plans to IPO in the near future,” he tweeted at the time. Swan had reportedly raised $165 million in December 2023 with the aim of going public via an IPO.

Citing this tweet in a July 25, 2024 investor letter, Klippsten told investors that Swan and Tether had a handshake agreement for the Managed Mining business, but that it was never officially contracted. Further, he said that Swan was “negotiating an exit” from the “original self-mining subsidiary in partnership with Tether.” He also wrote that, given the collapse of the Swan Managed Mining agreement, Swan revised its Series C target raise from $75 million at a $1.2 billion valuation to $30 million at a $300 million valuation. 

Swan never completed its Series C. The company claims in its initial argument in U.K. court that Tether’s “reneging on agreements to establish [2140 Energy] … had a negative impact on Swan’s position.”

Roughly two weeks after the Swan circulated the July investor letter, Swan’s bitcoin mining team, which included 13 full time employees and contractors, resigned en masse on August 8 and 9 to join Proton Management. On August 12, 2024, Tether claims that Klippsten resigned as CEO of 2040 Energy (while in its own account, Swan alleges in its September 2024 lawsuit that 2040 Energy removed Klippsten as CEO); the same day, Tether employed Proton Management.

What’s next for Swan and Tether after the lawsuit?

The tangle of lawsuits wrapped around Tether and Swan’s bitcoin mining business offer a new face to an old problem for the nascent bitcoin mining industry: joint ventures are fraught endeavors. They seldom pan out in practice as they do on paper and can easily fracture business relationships. 

“The biggest risk in mining isn’t the market—it’s the counterparty. When trust is misplaced, even the strongest partnerships can be undone. When a third party controls critical assets, as seen in the Tether-Swan dispute, trust can quickly become a liability,” said Amanda Fabiano, cofounder of Second Gate Advisory and the former head of bitcoin mining at Galaxy Digital.

The story gives a look into Tether’s financial stake in bitcoin mining. One of the most profitable crypto businesses, Tether has aggressively pursued Bitcoin mining and energy contracts in what appears to be asset diversification away from bitcoin and U.S. Treasuries.

For Swan, the critical question going forward pertains to its financial soundness, particularly after mass layoffs and high profile legal suits. After all, Swan’s Series C investor deck states that the mining joint-venture generated $84 million in revenue in the first half of 2024, while Swan’s financial services generated $6 million in 2023 and the company projected $13 million in revenue for 2024. Further, its former mining employees quit Swan “fearing bankruptcy and concerned about Swan’s mismanagement of its business and ongoing cash crisis,” according to court documents. 

Lastly, why would Swan volunteer to encumber its equity to a competitor of its business partner, Tether, only to amend the statements later? Was the financing connected to cash flow concerns, as raised by former Swan mining team members, or another expense?

Lastly, why would Swan volunteer to encumber its equity to a competitor of its business partner, Tether, only to amend and terminate it later?

Perhaps further court documents will elucidate these and other questions.

Editor’s note: Thank you to Marc Hochstein for edits and suggestions.