Swan Bitcoin, a prominent financial services company specializing in Bitcoin, has filed a lawsuit against Gibson, Dunn & Crutcher, a law firm it had retained for legal representation. The lawsuit, which was filed in California’s Superior Court on November 22, 2024, accuses the prestigious law firm of legal malpractice, claiming it engaged in unethical behavior by creating a conflict of interest with Swan’s rival, Tether, a leading stablecoin issuer.
The case revolves around the fact that Gibson Dunn hired Barry Berke, a prominent attorney representing Tether, after Swan had already been using the firm’s services in its lawsuit against a group of former employees. Swan claims that the law firm had initially promised to represent it in a legal dispute involving Proton Management, a crypto-mining firm formed by former Swan employees. However, the firm later allegedly "embraced Tether as a client," leading to a conflict of interest and forcing Swan to find new legal representation.
According to the lawsuit, one of Gibson Dunn’s attorneys called Swan’s CEO Cory Klippsten to inform him that the law firm could no longer represent Swan due to the conflict arising from its new relationship with Tether. Swan claims the law firm "wooed and won" their business with the promise of exclusive representation, only to later "embrace Tether as a client and tell Swan to get lost."
Swan’s legal team argues that Gibson Dunn’s actions were a violation of professional ethics, specifically the "Hot Potato Rule." This rule prohibits attorneys from abandoning a client to avoid conflicts of interest. Swan has contended that Gibson’s decision to withdraw from its legal representation was aimed at sidestepping potential complications tied to Tether, ultimately leaving Swan without counsel for its ongoing case.
The conflict emerged in the wake of Swan’s lawsuit against its former employees, who allegedly stole proprietary software to form a competing crypto-mining company called Proton Management. In September 2024, Swan filed the suit, claiming that the former employees convinced Tether to sever its business relationship with Swan and instead support Proton.
Although Tether was not named as a defendant in the lawsuit, Swan claimed that Proton’s founders had played a key role in persuading Tether to back the new mining venture, which Swan argues directly harmed its business. Swan also alleges that this effort to undermine its operations led to the law firm’s conflict of interest when Gibson Dunn hired Barry Berke, who is involved in representing Tether.
On November 24, Gibson Dunn formally filed to withdraw as Swan’s legal representation in the case against Proton Management, citing a "complete breakdown of the attorney-client relationship." The law firm also referenced Swan’s refusal to pay legal fees and claims by Swan that the firm demanded millions of dollars to avoid opposing its withdrawal from the case.
In response to Gibson Dunn’s attempt to withdraw, Swan filed an urgent motion for a temporary restraining order (TRO) on November 25, requesting the court to block the firm’s withdrawal and prevent it from representing Tether in any capacity related to the case. Swan claims that Gibson’s decision violates the legal ethics rule against conflicts of interest and client abandonment.
A hearing on Swan’s request for the TRO is scheduled for November 26, where a judge will determine whether the firm can withdraw from the Proton case and whether Swan’s claims of ethical violations will be considered in the context of the dispute.
The legal battle between Swan Bitcoin and Gibson Dunn highlights the ethical complexities of representing competing interests in high-stakes crypto litigation. As Bitcoin and other cryptocurrencies continue to rise in prominence, legal and regulatory challenges in the space have become increasingly intricate. This case underscores the importance of maintaining clear ethical boundaries for law firms in the cryptocurrency sector, especially when dealing with large and competing corporate clients like Swan and Tether.
Swan Bitcoin’s lawsuit also sheds light on the often-tense relationships between cryptocurrency companies and the legal firms that represent them, especially in cases involving high-value assets, intellectual property disputes, and conflicts of interest. The outcome of this case could have wider ramifications for how law firms approach conflicts of interest and client representation within the fast-evolving crypto industry.
Swan Bitcoin’s lawsuit against Gibson, Dunn & Crutcher serves as a cautionary tale for companies and legal firms operating in the cryptocurrency space. The conflict between Swan and the firm centers on the issue of conflict of interest and ethical considerations when handling high-profile clients. As Bitcoin and the wider crypto market continue to grow, these types of legal challenges are likely to become more frequent, with major implications for how law firms navigate conflicts in this volatile sector.
As the case progresses, it will be crucial to monitor the potential impact on the wider industry, particularly as cryptocurrency firms face increasing scrutiny and competition in a rapidly changing legal environment.
November 2024, Cryptoniteuae