FTX’s Alameda Sues Grayscale Over Fees, Redemptions From Crypto Trusts

Yueqi Yang, Bloomberg News

The Grayscale booth at the Exchange ETF Conference in Miami Beach. , Photographer: Eva Marie Uzcategui/Bloomberg

(Bloomberg) -- Alameda Research, the trading arm of the bankrupt digital-asset exchange FTX, filed a lawsuit against Grayscale Investments alleging “exorbitant management fees” and accusing Grayscale of “improperly preventing redemptions” from the Bitcoin and Ether trusts it manages.

“We will continue to use every tool we can to maximize recoveries for FTX customers and creditors,” John J. Ray III, chief executive officer and chief restructuring officer for FTX, said in the statement. “Our goal is to unlock value that we believe is currently being suppressed by Grayscale’s self-dealing and improper redemption ban.”

The complaint filed by Alameda comes a day before oral arguments scheduled for Mar. 7 in Grayscale’s lawsuit against the US Securities and Exchange Commission. Grayscale sued after the US regulator denied its petition to convert the Bitcoin trust to an exchange-traded fund.

Read: Grayscale, SEC Face Off in Court With 46% Discount at Stake

A spokesperson for Grayscale said the lawsuit was “misguided”: “Grayscale has been transparent in our efforts to obtain regulatory approval to convert GBTC into an ETF – an outcome that is undoubtedly the best long-term product structure for Grayscale’s investors. We remain confident in the common sense, compelling legal arguments that will be argued tomorrow before the D.C. Court of Appeals.”

For two years, the $14 billion Grayscale Bitcoin Trust (ticker GBTC) has been trading at a steep discount to the cryptocurrency it holds. The lawsuit is seeking injunctive relief to unlock $9 billion or more in value for all shareholders of the two Grayscale trusts.

Alameda said it owned $290 million worth of shares in Grayscale’s Bitcoin and Ether trusts as of March 3, according to the complaint, which acknowledged that the trading firm’s records may be incomplete. Those shares amounted to more than 3% and 2%, respectively, of the overall float as at the end of 2022, according to the complaint. The lawsuit claims the combined stake would rise in value to more than $540 million if Grayscale were to cut fees and allow redemptions.

GBTC charges a 2% annual fee, which compares with an average of 0.54% across the entire US ETF universe, according to Bloomberg Intelligence data. Grayscale has stated that it isn’t allowed to redeem shares under the current guidelines.

Grayscale has also faced lawsuits from hedge fund Fir Tree Capital Management and a rival digital-asset manager Osprey Funds.

In January, Osprey accused Grayscale of conducting “false and misleading advertising” for the Bitcoin trust. Grayscale said at the time that the lawsuit was “frivolous” and that “the conversion of GBTC to an ETF is the best long-term product structure for Grayscale’s investors, and approval of a spot Bitcoin ETF would directly benefit our industry peers.”

Fir Tree, which filed its suit at the end of last year, said GBTC’s retail investors have been “harmed by Grayscale’s shareholder-unfriendly actions.” At the time, Grayscale said that it launched GBTC “to provide investors with access to Bitcoin, and always with the intention of converting it to an ETF when permitted by US regulators.”

The Alameda complaint also named Digital Currency Group, its founder Barry Silbert and current Grayscale Chief Executive Officer Michael Sonnenshein. The lawsuit was filed in the Court of Chancery in the State of Delaware.

--With assistance from Jeremy Hill, Vildana Hajric and Stephen Kirkland.

(Adds recent lawsuits information, more details from complaint, starting in the sixth paragraph.)