Grayscale, the world’s largest Bitcoin fund, is being sued by Alameda and FTX on behalf of FTX’s debtors and affiliates.
According to a press release issued by the FTX Debtors on Monday, claims have also been filed directly against Grayscale CEO Michael Sonnenshein and Digital Currency Group (DCG) CEO Barry Silbert. Grayscale is owned by DCG.
Alameda, FTX Lawsuit Calls Out Grayscale ‘Redemption Ban’
The complaint by Alameda seeks to “unlock $9 billion or more in value for shareholders of the Grayscale Bitcoin and Ethereum Trusts,” according to a statement.
Allowing shareholders to redeem their shares, according to FTX, would recoup almost $250 million in value for FTX clients, who have been left high and dry since the exchange banned withdrawals in November.
Grayscale allegedly charged over $1.3 billion in management fees in violation of trust agreements, according to the complaint.
Furthermore, it allegedly made up explanations to keep stockholders from redeeming their shares, resulting in a “self-imposed redemption ban,” according to the statement.
As a result, the Trusts’ shares trade “at roughly a 50% discount to Net Asset Value,” the statement disclosed.
Grayscale’s Battle With Regulators
Grayscale is now locked in a legal dispute with the U.S. Securities and Exchange Commission over the regulator’s reluctance to allow Grayscale to convert its fund into a Bitcoin Spot ETF.
Such a product would make shares easily redeemable and would erase the GBTC share discount overnight.
The District of Columbia Court of Appeals will hear oral arguments on the matter on March 7.
Grayscale’s Bitcoin fund is designed to provide Bitcoin exposure to those who would otherwise be unable to hold units of the actual cryptocurrency.
However, because the fund’s shares are not easily redeemable for their underlying Bitcoin, the shares frequently trade well above or below the value of the company’s BTC.
According to the Financial Times, Alameda has 22 million shares of Grayscale’s Bitcoin Trust and 6 million shares of its Ether Trust.
Genesis Global, DCG’s lending subsidiary, declared bankruptcy on January 19. Withdrawals from the platform were suspended in November 2022 because of market turmoil triggered by the collapse of FTX.
The action impacted consumers of Gemini Earn, a yield-bearing program for Gemini bitcoin exchange users administered by Genesis.
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