FTX trading subsidiary Alameda is suing Grayscale over crypto investments

FTX trading subsidiary Alameda has hired crypto investment firm Grayscale and its owner Digital Currency Group over the structure of their large Bitcoin sued and Ethereum Trusts, which deals another blow to the SoftBank-backed crypto conglomerate.

Alameda, which along with other FTX subsidiaries is run by restructuring expert John Ray, accused Grayscale and DCG management of being “obsessed with self-interest” and enriching themselves “at the expense of trust shareholders” by refusing redemptions and charging exorbitant fees Fees.

Grayscale, DCG’s wealth management business, operates several cryptocurrency trusts from which it earns lucrative fees managing Bitcoin, Ethereum, and other tokens for clients. Investors can buy shares in the trusts through their brokerage accounts instead of being directly exposed to the coins.

Alameda owns more than 22 million shares of Grayscale’s flagship bitcoin trust, the complaint says, and another 6 million shares of the company’s Ethereum Trust, representing more than 3 percent and 2 percent of the total outstanding shares, respectively.

Those holdings were worth $290 million in secondary markets late last week, the complaint added, and could be worth nearly double that if Grayscale lowered its fees and allowed investors to redeem their shares for the equivalent of the underlying crypto assets .

Since the collapse of FTX last year — which was founded by Sam Bankman-Fried, who was forced to resign when the exchange and its subsidiaries, including Alameda, filed for bankruptcy — stakes in the trusts have been up relative to the underlying crypto Significant discounts please keep them. Grayscale’s Bitcoin Trust is trading at a 45 percent discount to the Bitcoin price.

Grayscale doesn’t allow investors to redeem their shares against the coins held in the trusts, which would help close the significant net asset value gaps.

“Because of [Grayscale and DCG’s] Wrongdoing . . . The only way for shareholders to exit their investments is to sell their interest in the trusts in the secondary market, where the shares trade at a fraction of their proportionate interest in the trust assets,” FTX claimed in its filing with a Delaware court on Monday.

In a statement, FTX’s John Ray said, “We will continue to use every tool at our disposal to maximize returns for FTX clients and creditors.”

The lawsuit marks the latest trouble for Connecticut-based DCG, which is one of the largest and oldest crypto investors. DCG CEO, former Houlihan Lokey banker Barry Silbert, and Grayscale CEO Michael Sonnenshein are also named in the complaint.

DCG has been battling the fallout of falling crypto prices and the collapse of FTX for the past year.

The lending unit of its crypto broker Genesis filed for bankruptcy earlier this year. The group is trying to sell its news site CoinDesk to raise funds and repay creditors.

Grayscale’s flagship bitcoin trust holds about 3 percent of all $14.7 billion worth of bitcoin, from which the wealth manager earns a 2 percent fee. It earns a 2.5 percent fee for the 3 million Ethereum in its Ethereum Trust.

The wealth manager has long advocated converting the trusts into exchange-traded funds. Grayscale is suing the Securities and Exchange Commission for blocking the creation of a spot bitcoin ETF, arguing it would benefit investors and allow redemptions. Oral arguments in the case are scheduled to be heard in a federal appeals court on Tuesday.

“The lawsuit filed by Sam Bankman-Fried’s hedge fund Alameda Research is misguided,” Grayscale said, adding that the company “has been transparent in our efforts to obtain regulatory approval to convert GBTC into an ETF — a result that undoubtedly this is the best long-term product structure for Grayscale’s investors.”