Grayscale Investments and executives sued by FTX debtors

Grayscale CEO Michael Sonnenshein, Digital Currency Group, and Barry Silbert are being sued by Alameda Research, the hedge fund run by the disgraced former multi-billionaire Sam Bankman-Fried.

A press release covering the lawsuit stated:

“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.”

Per the announcement, Grayscale “extracted” management fees totaling over $1.3 billion, all the while violating legally binding trust agreements. The case also accuses Grayscale of using “contrived excuses” for years in order to keep shareholders from ever redeeming shares, resulting in shares trading at a 50% discount to Net Asset Value (NAV).

A discount to NAV is said to have a negative feedback loop whereby investors are encouraged to sell over a 6-month time horizon (GBTC unlock period).

Further, the lawsuit alleges that the FTX Debtors’ shares would have been worth at least $550 million, or 90% more than their current valuations, if Grayscale lowered fees and stopped improperly thwarting redemptions and redemption requests.

Grayscale has come under growing pressure to make structural changes as a result of Valkyrie Investments’ attempt to seize control of the trust. Grayscale CEO Michael Sonnenshein also suggested that a tender offer for 20% of the $10.7 billion trust may be a possible course of action if the Grayscale Bitcoin Trust’s effort to become an exchange-traded fund (ETF) failed.

CEO and Chief Restructuring Officer of the FTX Debtors John J. Ray III stated that he and his team will continue using all available resources to maximize recoveries for FTX customers and creditors.

Ray added:

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.

Meanwhile, FTX’s committee of unsecured creditors has issued a subpoena to exchange insiders including infamous fraudster Sam Bankman-Fried (SBF), who must provide details related to the exchange’s implosion.

The cacophony of lawsuits filed in the wake of the 2022-market carnage appears to have no end in sight.