Investment management firm, Osprey Funds, has taken legal action against Grayscale Investments for allegedly lying to investors about the conversion of Grayscale Bitcoin Trust (GBTC) into an exchange-traded fund (ETF).
GBTC, the largest Bitcoin fund with $14.6 billion in assets, has long sought approval from the Securities and Exchange Commission (SEC) to become an ETF. Conversion to an ETF would eliminate the discount that the fund’s shares currently trade at, which would be a major benefit to GBTC holders.
Grayscale sued the SEC last year after their conversion efforts were blocked, and oral arguments are scheduled in the case for March. Osprey Funds, who manage the much smaller Osprey Bitcoin Trust (OBTC), with $64.2 million in assets, filed the lawsuit in Connecticut Superior Court on January 30th.
Allegations of False Advertising
Osprey Funds claims that Grayscale promoted GBTC’s conversion into an ETF as a “foregone conclusion,” despite the SEC’s refusal to approve similar products. They also assert that Grayscale’s false and misleading advertising is what has allowed them to maintain 99.5% market share, even though they charge four times more in asset management fees than Osprey.
Osprey’s OBTC carries an annual fee of 0.49%, while GBTC charges 2% of its assets as an annual fee. The lawsuit also accuses Grayscale of sending business to overpriced affiliates, contributing to their high fees.
Grayscale Denies Allegations
Grayscale has dismissed the lawsuit as “frivolous” and maintains that approval to convert GBTC into a spot Bitcoin ETF would benefit the industry. A Grayscale spokeswoman said they continue to expect a court decision by this fall.
The lawsuit claims that Grayscale also promoted its services as “transparent,” free of certain risks, “secure,” and supported by a “proven track record,” which Osprey alleges are false and deceptive.
Osprey’s founder and CEO, Greg King, wrote an open letter to Barry Silbert, CEO of Digital Currency Group and parent company of Grayscale Investments, earlier this month. The letter stated that Grayscale Bitcoin Trust required “specific expertise and the truth of both regulators and all market participants,” but Osprey was best positioned to manage GBTC due to the trust they have that Grayscale does not.
Conclusion
Osprey Funds has taken legal action against Grayscale Investments for allegedly misleading investors about the conversion of Grayscale Bitcoin Trust into an ETF. The lawsuit claims that Grayscale promoted the conversion as a “foregone conclusion” despite the SEC’s refusal to approve similar products, and accuses the company of false and deceptive advertising. Grayscale has dismissed the allegations as frivolous.
