FTX Debtors Sue Grayscale Investments and Executives

Grayscale Investments, LLC, CEO Michael Sonnenshein, Digital Currency Group, and Barry Silbert are being sued by Alameda Research Ltd., the hedge fund run by disgraced former 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.

According to the announcement, Grayscale “extracted” management fees totaling more than $1.3 billion while violating trust agreements. The case also claims that Grayscale has been using “contrived excuses” for years to keep shareholders from redeeming their shares, and has resulted in shares to trade at a 50% discount to Net Asset Value.

The lawsuit alleges that the FTX Debtors’ shares would be worth at least $550 million, or 90% more than their current value, if Grayscale lowered its fees and stopped improperly preventing redemptions.

With Valkyrie Investments seeking to take control of the trust, Grayscale has been under increasing pressure to make structural changes. In a letter to investors, Grayscale CEO Michael Sonnenshein also mentioned that if Grayscale Bitcoin Trust’s attempt to become an exchange-traded fund (ETF) failed, possible next steps could include a tender offer for 20% of the $10.7 billion trust.

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.