FTX Affiliate Alameda Research Sues Grayscale Over Crypto Investments, Adding To Misery For Digital Currency Group – What’s Going On?

In a dramatic bid to recover lost funds, Alameda Research has filed a lawsuit against Grayscale Investments, alleging that the company charged “exorbitant management fees” and prevented redemptions.

Grayscale is a major player in the cryptocurrency market, operating popular over-the-counter traded funds such as Bitcoin Trust (GBTC) and Ether Trust (ETHE).

The lawsuit specifically named Grayscale CEO Michael Sonnenshein as a defendant in the case.

Both are subject to an annual management fee of 2% (the US ETF industry standard is 0.54%, according to Bloomberg data).

Accredited investors can deposit Bitcoin or Ethereum to receive shares in the trust.

Alameda said it owned shares worth $290 million in GBTC and ETHE, equivalent to 3% and 2% of the respective trusts at the end of 2022.

The firm claims that its stake will rise to a value of $540 million if Grayscale greenlights redemptions.

GBTC redemptions continue to cause Gridlock

But a governing regulation at GBTC prevents investors from selling their shares for a period of six months after investment.

For a long time, Grayscale trusts have traded at a significant discount to BTC and ETH, which has seen institutional investors lock up large amounts of capital.

GBTC is currently trading at a -42.11% discount to net asset value.

The firm has so far held back on redemptions during the discounted period as it continues to seek conversion of GBTC and ETHE to ETF spot funds.

This is due to fears that redemptions could have a huge impact on Bitcoin price performance and Grayscale’s operational future.

But with an attempted ETF conversion last year rejected, Grayscale itself is now pursuing a lawsuit against the SEC.

Shades of Gray turn to court in ETF pursuit

Shades of Gray hit back at the Alameda lawsuit, labeling it “misconceived.” The statement comes ahead of oral arguments in Grayscale’s case against the SEC.

CEO Michael Sonnenshein released a statement defending Grayscale’s decisions and allegations.

“Greys has been transparent in our efforts to obtain regulatory approval to convert GBTC to an ETF,” it said.

“[An ETF is] a result 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 DC Court of Appeals.

Alameda Research joins GBTC lawsuit

This is far from the first time Grayscale has been the subject of a lawsuit – perhaps reflected by their legal ‘accredited’ customers.

In January, Osprey Funds announced a lawsuit against Grayscale. The suit alleged that Grayscale conducted “false and deceptive advertising” for GBTC.

And this followed an earlier case late last year, in which Osprey’s rival firm, Fir Tree Capital Management, alleged that GBTC’s retail investors were harmed by Grayscale’s “shareholder-unfriendly actions” in its pursuit of the ETF.

It remains to be seen what the outcome of the lawsuit filed by Alameda Research against Grayscale will be.