- FTX’s affiliate, Alameda Research, is suing Grayscale Investments over allegations of improper redemption ban and exorbitant management fees.
- FTX debtors are seeking injunctive relief to unlock $9 billion or more in value for Grayscale shareholders.
- Grayscale denies any wrongdoing and argues for the conversion of GBTC into an ETF.
The ongoing legal battles in the cryptocurrency world have recently taken another twist. Failed crypto company FTX’s affiliate, Alameda Research, is suing asset manager Grayscale Investments to unlock investments it says are improperly withheld from its customers.
The new leadership of FTX, led by CEO John Ray III, accuses Grayscale of prohibiting shareholders of Grayscale’s Bitcoin and Ethereum Trusts from redeeming their shares and calling out Grayscale for charging “exorbitant management fees,” which they say is suppressing the value of the claims.
Alameda Research Sues Grayscale Investments
This lawsuit is the latest problem for Digital Currency Group (DCG), one of the largest and oldest crypto investors. DCG’s chief executive, Barry Silbert, and Grayscale’s chief executive, Michael Sonnenshein, are also named in the complaint. DCG has been battling the fallout from plunging crypto prices and the collapse of FTX since last year.
FTX went bankrupt in November in a spectacular crash after its team allegedly mismanaged the exchange by commingling funds and making risky bets with customer cash via Alameda. Hundreds of millions of dollars in client cash is now missing—with a large amount presumed stolen. Its ex-CEO and co-founder, Sam Bankman-Fried, is now facing many criminal charges in court.
FTX’s debtors are now seeking injunctive relief to unlock $9 billion or more in value for Grayscale shareholders. FTX customer cash is locked up in Grayscale as they were drawn to its investment vehicle, enabling investors to trade shares in trusts holding large pools of Bitcoin or Ethereum.
Grayscale Pushes Back Against Allegations of Wrongdoing
Grayscale has been transparent in its efforts to obtain regulatory approval to convert GBTC into an ETF, which is undoubtedly the best long-term product structure for Grayscale’s investors. However, according to Alameda, Grayscale is still charging fees far more significant than those typically paid to advisers on crypto-tied ETFs. The hedge fund alleges suffering “hundreds of millions of dollars in harm” because of Grayscale’s actions.
Alameda Research owns more than 22 million shares in Grayscale’s flagship Bitcoin trust and a further 6 million shares of the company’s Ethereum trust, equating to more than 3% and 2% of the overall shares outstanding, respectively. The complaint added that those holdings were worth $290 million on the secondary markets as of the end of last week. It could be almost double that if Grayscale reduced its fees and allowed investors to redeem their shares for the equivalent value in the underlying crypto assets.
Since the collapse of FTX last year, shares in the trusts have fallen to substantial discounts compared to the underlying crypto they hold. Grayscale’s Bitcoin trust is trading at a 45% discount on the price of Bitcoin. Grayscale does not allow investors to redeem their shares for the coins held in the beliefs, which would help close the significant net asset value gaps.
Grayscale is suing the US Securities and Exchange Commission over blocking the creation of a spot Bitcoin ETF, arguing that this would benefit investors and allow redemptions. Oral arguments, in that case, are scheduled to be heard by a federal appeals court this week.
