May 26, 2024
Alameda Research Continues Legal Battle Against Grayscale Investments
Policy & Regulation

Alameda Research Continues Legal Battle Against Grayscale Investments

Alameda Research attempted to include additional plaintiffs in its legal battle with Grayscale Investments, but it was still the only one named in an updated complaint submitted on Friday.

The bankrupt corporation has adjusted its allegations against the cryptocurrency firm, at least temporarily, due to its inability to gather co-plaintiffs.

However, according to a source familiar with the filing, Alameda intends to keep talking to shareholders about their readiness to take part in the legal action. The company also said it planned to update the complaint once more if enough shareholders concurred.

Alameda, which Sam Bankman-Fried founded, is a debtor associate of the insolvent cryptocurrency exchange FTX from last November. In March, the business filed a lawsuit against Grayscale, alleging that the fee schedule and redemption restrictions on its Bitcoin Trust (GBTC) and Ethereum Trust (ETHE) had reduced the value of Alameda’s shares by 90%.

Prior to this, a Grayscale representative stated that the case was “entirely without merit.”

Alameda sought hundreds of millions of dollars in damages and injunctions compelling Grayscale to lower its annual price and provide redemptions in its initial complaints.

Grayscale had contended that the fee-related allegations could only be brought if co-plaintiffs included shareholders who owned 10% of each trust’s outstanding shares. Alameda claimed in a motion filed with the Delaware Chancery Court on August 2 that it fell short of the necessary number of shareholders after one anonymous stakeholder withdrew from the lawsuit.

Approximately 45 people, funds, and family offices stated they are ready to participate as new plaintiffs, according to Alameda’s filing from last month, and they requested extra time to put them together.

The plaintiff had been granted until September 15 to reply to Grayscale’s motion to dismiss, which was submitted in May. However, the day-old amended complaint still lists Alameda as the sole plaintiff.

Fir Tree Partners, 210K Capital, UTXO, Owl Creek Asset Management, Aristides Capital, and ProChain Capital all indicated a desire to join the lawsuit, according to the complaint filed on September 15. However, it continues, not enough stockholders “came forward to exceed Grayscale’s asserted 10% threshold” due to circumstances “unrelated to the merits of the claims.”

“While allegations surrounding the fees remain in the complaint, Alameda has dropped those claims, and the complaint now appears to be centred solely around the request for redemptions,” Bloomberg Intelligence litigation analyst Negisa Balluku explained. “However, Alameda doesn’t seem to foreclose the possibility that in the future it may add additional plaintiffs and bring back the sponsor fee claims.”

Despite the modifications, the amended complaint stated that it aims to recover “nine figures in harm” to help its Chapter 11 bankruptcy estate.

“Due to defendants’ bad faith refusal to allow redemptions, shareholders can exit their investments in the trusts only by selling their shares in the secondary market, where shares trade at a fraction of their proportionate interest in trust assets,” the document states.

GBTC shares can be purchased or sold at a premium or discount to the value of the bitcoin that underpins the trust’s value on the OTC Markets Group’s OTCQX exchange.

According to YCharts.com, GBTC was trading on Friday at a discount of roughly 19% to its net asset value (NAV). For ETHE on Friday, the discount to NAV was about 25%.

“Remedying the harm to the Alameda debtor will also unlock over $4 billion in value for over one million other trust shareholders, many of whom are small retail investors that defendants are continuing to exploit,” the amended complaint wrote.

According to Grayscale management, the issue of the fund’s shares trading at a discount or premium would be resolved by converting GBTC to an ETF. The trust is currently managing $16.4 billion in assets.

Last month, the company prevailed in a dispute against the US Securities and Exchange Commission. Judges for the DC Circuit Court of Appeals declared the SEC’s decision to reject GBTC’s conversion to an ETF while approving bitcoin futures ETFs to be “arbitrary and capricious.”

Though the choice does not mandate that the SEC accept GBTC’s conversion, several market observers have stated that they think it raises the chances that the agency will eventually accept the change, as well as other planned spot bitcoin ETFs.

“Grayscale’s victory over the SEC that could lead to the launch of its first bitcoin ETF may render Alameda’s redemption request meaningless,” Balluku stated in an Aug. 30 research note.

Image: Unsplash

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