Grayscale’s CEO as well as owners Digital Currency Group and Barry Silbert allegedly violated trust agreements, according to the lawsuit.
Alameda Research Ltd., the hedge fund belonging to disgraced ex-billionaire Sam Bankman-Fried, is suing Grayscale Investments, LLC, its CEO, Michael Sonnenshein, and its owners, Digital Currency Group and Barry Silbert as a debtor affiliate of FTX.
According to a press release announcing the lawsuit, “FTX Debtors are seeking injunctive relief to unlock $9 billion or more in value for shareholders of the Grayscale Bitcoin and Ethereum Trusts (the “Trusts”) and realize over a quarter billion dollars in asset value for the FTX Debtors’ customers and creditors.”
The release describes how Grayscale has “extracted” more than $1.3 billion in management fees while violating trust agreements. In addition, the complaint alleges that “Grayscale has for years hidden behind contrived excuses to prevent shareholders from redeeming their shares,” with the firm’s actions having resulted in shares trading at 50% discount to Net Asset Value.
“If Grayscale reduced its fees and stopped improperly preventing redemptions,” the lawsuit alleges, “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 has faced mounting pressure to make structural changes to the trust, including Valkyrie Investments seeking to take the reins of the trust. Grayscale CEO Michael Sonnenshein also stated in a letter to investors that should the Grayscale Bitcoin Trust fail to convert into an exchange-traded fund (ETF), potential moves could include a tender offer of 20% of the $10.7 billion trust.
As for FTX, which went bankrupt in November 2022, the quest to reacquire funds that could potentially rectify creditors goes on.
“We will continue to use every tool we can to maximize recoveries for FTX customers and creditors,” stated John J. Ray III, CEO and Chief Restructuring Officer of the FTX Debtors. “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.”