FTX Debtors and affiliate Alameda Research Ltd. have filed a lawsuit against Grayscale Investments, seeking injunctive relief to unlock $9 billion in value for shareholders of the Grayscale Bitcoin and Ethereum Trusts. The debtors allege that “Grayscale has extracted over $1.3 billion in exorbitant management fees in violation of the trust agreements.”
FTX Debtors Accuse Grayscale of Exorbitant Management Fees and Breach of Trust Agreements
In a press release issued March 6, 2023, FTX debtors and Alameda Research, the company’s now-defunct quantitative trading firm, announced that Alameda is suing digital currency fund manager Grayscale Investments. Alameda seeks injunctive relief to allow redemptions and reduce fees associated with the Grayscale Bitcoin and Ethereum Trusts. The debtors allege that Grayscale and its management team continue to “breach trust agreements and fiduciary duties.”
Alameda also argues that Grayscale’s self-imposed redemption ban prevents the “realization of approximately $9 billion of value.” The firm’s CEO and chief restructuring officer, John J. Ray III, issued a statement regarding the lawsuit against Grayscale, stating: “We will continue to use every tool we can to maximize recoveries for FTX customers and creditors.” The FTX debtors restructuring officer added:
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.
The lawsuit against Grayscale follows Alameda’s lawsuit against Voyager Digital at the end of January 2023. The complaint alleged that Voyager received preferential transfers of property from Alameda Research, and the firm sought to recover approximately $445.8 million from the bankrupt entity. Voyager agreed to set aside the $445 million to pay Alameda, and both parties agreed to participate in nonbinding mediation.
The press release from FTX debtors alleges that for years, Grayscale has “hidden behind contrived excuses” to prevent shareholders from redeeming their shares. It also noted that the Bitcoin Trust (GBTC) has been trading 50% below net asset value (NAV). GBTC statistics on Tuesday show a current 42.11% discount to NAV.
“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,” the complaint against Grayscale concludes.
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Alameda Research, Bankruptcy, Bitcoin, contrived excuses, creditors, Cryptocurrency, Digital Currency, Discounts, Ethereum, Fees, fiduciary duties, ftx, FTX customers, Grayscale Investments, improper redemption, injunctive relief, Lawsuit, management fees, NAV, Net asset value, non-binding mediation, preferential transfers, property, recovery, redemption ban, self-dealing, Shareholders, Trusts, Value, Voyager Digital
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Jamie Redman is the News Lead at Bitcoin.com News and a financial tech journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open-source code, and decentralized applications. Since September 2015, Redman has written more than 6,000 articles for Bitcoin.com News about the disruptive protocols emerging today.
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Alameda Research, a cryptocurrency asset management company based in San Francisco, California, recently filed a lawsuit against Grayscale Investments, a digital asset management firm, seeking to unlock billions in value for shareholders of their Digital Large Cap Fund (DLC).
The lawsuit alleges that since the formation of DLC fund in February 2020, Grayscale has caused its shareholders to suffer billions of dollars in diminished value by charging “unreasonable” fees and engaging in conflicts of interest that limited the fund’s capacity to invest in alternative strategies or mirror the performance of large-cap cryptocurrencies.
Grayscale, which is the largest cryptocurrency asset management firm in the U.S., and has over $85 billion in assets under management, is accused of charging undisclosed fees to investors and exercising influence over the DLC fund in order to push through their own interests.
The complaint further states that Grayscale limited the DLC fund to mirror only seven of the 20 largest cryptocurrencies by market capitalization and added restrictions on market data access that limited the fund’s ability to find better price information in order to maximize returns for its shareholders.
Alameda’s CEO and co-founder, Samuel Bankman-Fried, believes that Grayscale’s conduct violates their fiduciary duty to investors and opens them up to liability with their shareholders.
Alameda is seeking an injunction that prevents Grayscale from continuing its practice of charging undisclosed fees and engaging in these types of investments decisions. Alameda is also demanding monetary damages, in the form of “unjust enrichment” or “breach of fiduciary duty,” along with reimbursement of its own legal fees.
The lawsuit comes at a difficult time for Grayscale, which was recently called out by the SEC in May for misleading practices. This lawsuit seeks to uncover the truth behind Grayscale’s organization and hopefully succeed in unlocking billions of dollars for its investors.