Grayscale’s Legal Woes Worsen as Osprey Sues For “False and Misleading” Claims

In a lawsuit filed on Monday in Connecticut, Osprey Funds is claiming Grayscale made “false and misleading statements” with regard to its attempted conversion of GBTC into a spot Bitcoin ETF. Earlier this month, Osprey CEO Greg King sent an open letter to Barry Silbert of the DCG—the company that owns Grayscale—offering that his firm become GBTC’s new manager.

Osprey Sues DCG’s Grayscale

This Monday, Osprey Funds filed a lawsuit against Digital Currency Group’s Grayscale, primarily over its attempted conversion of the Grayscale Bitcoin Trust into a spot BTC ETF. According to Osprey, Grayscale “made materially false and misleading statements” and wilfully misrepresented the odds of regulators approving the conversion when it stated it was a “foregone conclusion”. The suing company alleges DCG’s subsidiary did this in an effort to gain a larger market share.

Grayscale has made materially false and misleading statements in its advertising and promotion to the effect and in substance that turning its bitcoin asset management services into access to a bitcoin ETF was a foregone conclusion, when it knew that access was never likely to happen.

Osprey isn’t the only competitor suing Grayscale over GBTC. In early December Fir Tree sued the company hoping to prevent the conversion of the fund into an ETF. According to Fir Tree, the primary goal of the “books and records” complaint is to make several key changes to GBTC and ultimately eliminate the trading discount that stood above 40% at the time.

Earlier in January, Osprey’s CEO, also acting on GBTC’s discount, sent an open letter to DCG’s Barry Silbert presenting his firm as the best candidate to take over the management of the Grayscale Bitcoin Trust.  Furthermore, at the very end of 2022, Valkyrie, while acknowledging Grayscale’s “important role”, also offered to replace it as the fund’s sponsor and manager.

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Grayscale Calls the Lawsuit “Frivolous”

Grayscale reportedly called the lawsuit “frivolous” and added that the conversion of BGTC into an ETF remains the “best long-term product structure for Grayscale’s investors”. The statement also pointed out that the “approval of a spot Bitcoin ETF would directly benefit our industry peers.” 

Grayscale’s contentious bid to turn GBTC into an exchange-traded fund got rejected by the Securities and Exchange Commission in late July. DCG’s subsidiary soon decided to fight against the decision as it sued the regulator. Recently, the court scheduled oral arguments in the case for March 7th.

GBTC is far from the only proposed spot BTC ETF to be rejected over the past year. In 2022, many other firms including WisdomTree and One River made similar, unsuccessful attempts. Apart from the Grayscale, perhaps the most notable rejection comes in the form of the decision against approving Ark’s 21Shares spot Bitcoin ETF that was reached late last week after multiple delays.

Do you think Grayscale made “false and misleading statements” to investors when marketing GBTC hoping to “steal” market share? Let us know in the comments below.