FTX files lawsuit against Grayscale and Digital Currency Group

The plaintiffs are demanding to unlock $9 billion for shareholders of the Grayscale Bitcoin and Ethereum trusts

07.03.2023 - 07:45

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2 min

What’s new? Debtors of the bankrupt FTX exchange and its affiliated hedge fund Alameda Research have filed suit against digital asset management company Grayscale Investments, its CEO Michael Sonnenshein, as well as the parent firm Digital Currency Group (DCG) and its owner Barry Silbert. The plaintiffs are seeking to unlock $9 billion or more for shareholders of the Grayscale Bitcoin and Ethereum trusts, of which about $250 million is accounted for by FTX customers or creditors.

FTX’s press release

What else does the press release say? Grayscale has received more than $1,3 billion in exorbitant management fees over the past two years in violation of the trust agreements. According to the statement, the company “has for years hidden behind contrived excuses to prevent shareholders from redeeming their shares.”

The FTX debtors accuse Grayscale of acting in a way that caused the trusts’ shares to trade at about a 50% discount to net asset value (NAV). If Grayscale lowered its fees and stopped improperly preventing the trusts’ shares from being redeemed, they would be worth at least $550 million, about 90% more than their current value, they say.

FTX’s new CEO, John J. Ray, said that he will continue to use every tool possible to maximize returns to the crypto exchange’s customers and creditors.

What is known about Grayscale? It is a digital asset management fund founded in 2013. The company allows US-accredited investors to buy cryptocurrency investment products in a regulated environment through traditional market instruments. It is part of the Digital Currency Group (DCG) conglomerate owned by Barry Silbert.

According to media reports, DCG began selling crypto fund units at a deep discount in early February and withdrawing shares of Grayscale-managed investment funds. This is how DCG is trying to raise funds to support Genesis. Later, the media reported that DCG’s 2022 losses exceeded $1,1 billion.

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