Grayscale Litigation: Shareholders' Battle Against Alleged Financial Misconduct

In a groundbreaking move, Alameda Research Ltd., UTXO Management, and Balch and Bingham LLP have unveiled Grayscale Litigation

by Faruk Imamovic
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Grayscale Litigation: Shareholders' Battle Against Alleged Financial Misconduct
© Getty Images News/Jack Taylor

In a groundbreaking move, Alameda Research Ltd., UTXO Management, and Balch and Bingham LLP have unveiled Grayscale Litigation, a new platform for shareholders of the Grayscale Bitcoin Trust and Grayscale Ethereum Trust (collectively referred to as “the trusts”).

This initiative seeks to rally shareholders to unite as co-plaintiffs in an ongoing lawsuit against Grayscale Investments, LLC. The litigation, initiated by Alameda, an affiliate of FTX Trading Ltd., alongside its associated debtors (collectively known as “the FTX debtors”), targets what many allege to be Grayscale's dubious financial practices.

Allegations of Financial Misconduct

The heart of the issue, according to John Ray, CEO and chief restructuring officer of the FTX debtors, revolves around Grayscale’s purported misuse of power. Ray articulated the frustrations of many when he remarked, “For years, Grayscale has been depriving shareholders of billions of dollars in value”.

The contention lies in Grayscale's alleged practice of levying excessive management fees, ostensibly in breach of trust agreements, and deliberately impeding shareholders from cashing in their shares. Ray's sentiments have garnered significant support from the trust's shareholder community, particularly since Alameda’s initial filing in March.

He lauds the "outpouring of support" and is buoyed by the sheer number of trust shareholders eager to challenge Grayscale's alleged infractions. Ray fervently calls on more shareholders to join their ranks, asserting that such collective action will bolster their case.

Shareholders Speak Out

Several institutional stakeholders have come forward in solidarity with Alameda's cause. Prominent names such as Fir Tree Partners, Saba Capital, Owl Creek Asset Management, and Aristides Capital have expressed their intent to join the fray.

Sachin Gupta, managing director at Fir Tree Partners, was forthright about their grievance, revealing that they had sought to hold Grayscale accountable "since last year" for its alleged destructive financial strategies.

He emphasized the necessity of restoring the undue management fees and permitting redemptions to reinstate the trusts’ value. UTXO Management's general partner, David Bailey, succinctly captured the sentiment of many aggrieved shareholders, asserting that Grayscale had prospered at the cost of its investors. “We’re not standing for it any longer,” he declared, championing the need for shareholders to recover their rightfully-owned digital assets.

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