Alameda Research Sues Grayscale for Overcharging Management Fees and Redemption Ban
FTX affiliate Alameda Research has sued Grayscale Investments for violating trust agreements by overcharging management fees and improperly banning investors’ redemptions.
In a press release on Monday, March 6, FTX debtors announced that Alameda Research had filed a lawsuit against crypto assets manager Grayscale Investments in the Court of Chancery in the State of Delaware. The lawsuit also asserts “claims against Grayscale’s CEO, Michael Sonnenshein, and its owners, Digital Currency Group and Barry Silbert.”
BREAKING: Alameda Research is suing Grayscale, Digital Currency Group, & CEO Barry Silbert.
— whalechart 🐳 (@WhaleChart) March 6, 2023
Grayscale Actions Reduce Shares Value by 90%
According to the court filing, Grayscale has maintained a “brazen abuse of their control over nearly $19 billion of digital assets held” in Bitcoin and Ethereum trusts.
Alameda’s lawsuit gathers that Grayscale violated the trust agreements and fiduciary duties by charging over $1.3 billion in exorbitant management fees in the past two years. The assets manager also self-imposed a redemption plan that prevented shareholders from redeeming their shares, forcing them to trade in the secondary market at half of their net value.
The court filing reads:
“Due to Defendants’ malfeasance and refusal to allow redemptions, the only way for shareholders to exit their investments is by selling their shares in the trusts in the secondary market, where shares are trading at a fraction of their proportionate interest in trust assets. Meanwhile, with investor capital trapped, Defendants have siphoned off over a billion dollars in fee income over the last two years alone.”
Alameda claims that Grayscale actions reduced the value of the shares of FTX Debtors by 90%. It asserts that if Grayscale reduced its fees and allowed redemptions, FTX debtor’s shares would be worth at least $550 million.
The lawsuit seeks injunctive relief to allow redemptions and reduce fees in Grayscale Bitcoin and Ethereum trusts. According to the press release, this will unlock “$9 billion or more in value for shareholders” and “realize over a quarter billion dollars in asset value for the FTX Debtors’ customers and creditors.”
John J. Ray III, chief restructuring officer of the FTX debtors, stated:
“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, Grayscale is set to argue the SEC decision to reject its application to convert Bitcoin trust into a spot Bitcoin ETF in a Washington DC court on Tuesday, March 7th.
In the latest development to the FTX bankruptcy case, a presentation filed in the court last week reveals that the amount of recovered liquid assets held by the FTX debtors has grown to $6.1 billion from $5.5 billion since their January report.
Liabilities : $11.2bn
Alameda owes FTX $9bn
Assets: $6bn pic.twitter.com/e6jDAu8PCd
— sunil k (@sunil_trades) March 4, 2023