FTX Debtors Sue Grayscale Investments Demanding Redemptions and Reduction in Management Fees
On Monday, March 6, bankrupt cryptocurrency exchange FTX filed a lawsuit against the world’s largest asset manager - Grayscale Investments - on behalf of its debtors and affiliates.
The company is demanding that Grayscale should permit redemptions on its Bitcoin and Ethereum Trusts. This would cumulatively unlock a total of $9 billion in value for the trust’s shareholders.
FTX has filed the lawsuit on behalf of its crypto lending subsidiary Alameda Research, at the Court of Chancery in the state of Delaware. The lawsuit shows that the FTX debtors have filed a complaint against Grayscale's CEO, Michael Sonnenshein, and its owners, Digital Currency Group and Barry Silbert. FTX said that over the last two years, Grayscale extracted more than $1.3 billion in "exorbitant management fees” thereby violating the Trust’s agreements.
Besides, FTX also claimed that the Grayscale Trusts used "contrived excuses” while preventing shareholders from redeeming their shares. This could have allowed to retrieve $250 million in value for FTX’s customers.
In its lawsuit, FTX argued: “Grayscale has for years hidden behind contrived excuses to prevent shareholders from redeeming their shares. Grayscale’s actions have resulted in the Trusts’ shares trading at approximately a 50% discount to Net Asset Value. If Grayscale reduced its fees and stopped improperly preventing redemptions, the FTX Debtors’ shares would be worth at least $550 million, approximately 90% more than the current value of the FTX Debtors’ shares today”.
Grayscale’s Bitcoin fund offers exposure to those who cannot hold the units of the actual cryptocurrency. But as the shares of the fed are not easily redeemable from the underlying Bitcoin, they often trade below or above the value of the company’s BTC.
In a statement, FTX CEO John Ray III said: “Our goal is to unlock value that we believe is currently being suppressed by Grayscale’s self-dealing and improper redemption ban. FTX customers and creditors will benefit from additional recoveries, along with other Grayscale Trust investors that are being harmed by Grayscale's actions.”
Grayscale has responded to the recent development stating that “the lawsuit filed by Sam Bankman-Fried’s hedge fund, Alameda Research, is misguided”. The asset manager added: “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.”