Osprey Claims Grayscale Misled Investors in Latest Suit

Bitcoin Trust, which Grayscale wants to convert to an ETF, falls 3.8%.

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Reviewed by: Shubham Saharan
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Edited by: Shubham Saharan

Osprey Funds charged Grayscale Investments with deceptive practices, among other claims, in a lawsuit that marks an escalation in its effort to take over management of the Bitcoin Trust that Grayscale is trying to convert into the first spot bitcoin ETF.  

Osprey Funds, which manages $100 million in assets, alleged in a filing on Monday with the Connecticut State Superior Court that Grayscale “engaged in unfair and deceptive acts in the asset management industry.” Osprey is also seeking a trail where compensatory damages will be determined and disgorgement of proceeds from the alleged “unfair and deceptive” behavior.  

Grayscale Bitcoin Trust, which manages $14.6 billion in assets, dropped 3.8% on Monday. Osprey’s own $64 million Osprey Bitcoin Trust (OBTC) slipped 3.6%. 

Management of Grayscale has been at the center of simultaneous takeover efforts by Osprey and Valkyrie Funds. Valkyrie, which operates the $26.5 million Valkyrie Bitcoin Strategy ETF (BTF), a bitcoin futures fund, and the $3.9 million Valkyrie Bitcoin Miners ETF (WGMI), earlier this year unveiled a proposal that it claims will help close the gap between GBTC’s market price and net asset value. 

Fairfield, Connecticut-based Osprey announced on Jan. 13 that it had asked rival Grayscale to become the sponsor of GBTC, with CEO Greg King claiming in an open letter that his firm would take over the fight to list the fund on the NYSE, among other endeavors.  

A Grayscale spokeswoman called the lawsuit “frivolous,” in emailed comments to ETF.com.  

“The conversion of GBTC to an ETF is the best long-term product structure for Grayscale’s investors, and approval of a spot Bitcoin ETF would directly benefit our industry peers,” the spokeswoman added.  

Grayscale’s own suit against the Securities and Exchange Commission for denying GBTC’s conversion to an ETF should receive a final decision from the U.S. Court of Appeals by fall of this year. Oral arguments for the case will kick-start March 7, according to a court order filed on Jan. 23.  

The stakes are high for Grayscale, as its parent company Digital Currency Group finds itself facing a slew of legal fights. The lending arm of Digital’s subsidiary Genesis filed for bankruptcy Jan. 20, and investors are parsing what that means as Valkyrie and Osprey try to take over GBTC.  

The filing stated that “Grayscale has made materially false and misleading statements in its advertising,” pointing to “advertising and promotion” from the Stamford, Connecticut-based company that “turning its Bitcoin asset management services into access to a Bitcoin ETF was a foregone conclusion, when it knew that access was never likely to happen.” 

Adding to its legal woes is hedge fund Fir Tree Capital Management’s complaint with the Delaware Chancery Court, filed last December, alleging that GBTC issued shares but failed to redeem them. Fir Tree is also seeking to keep Grayscale from converting GBTC into a spot bitcoin exchange-traded fund.  

 

Contact Shubham Saharan at [email protected]      

Shubham Saharan is a markets reporter at etf.com. Before joining the company, she reported for Bloomberg and the Financial Times. Saharan is a graduate of Barnard College of Columbia University.