Alameda amends complaint against Grayscale as co-plaintiff search continues
Debtor affiliate of FTX amends its claims against the crypto firm in absence of co-plaintiffs, but still aims to recruit more support
Lightspring/Shutterstock modified by Blockworks
Though Alameda Research had sought to add plaintiffs to its legal fight against Grayscale Investments, it remained the only one listed in an amended complaint filed Friday.
The bankrupt company’s inability to assemble co-plaintiffs means it has modified its claims against the crypto firm — at least for now.
But Alameda is set to continue engaging with shareholders about their willingness to participate in the litigation, a person familiar with the filing told Blockworks. If sufficient shareholders agree, the firm plans to amend the complaint again, they added.
Founded by Sam Bankman-Fried, Alameda is a debtor affiliate of crypto exchange FTX that filed for bankruptcy last November. The company sued Grayscale in March, claiming that the fee structure and redemption ban on its Bitcoin Trust (GBTC) and Ethereum Trust (ETHE) had lowered the value of Alameda’s shares by 90%.
A Grayscale spokesperson previously told Blockworks the lawsuit is “entirely without merit.” The representative declined to comment on the amended filing Monday.
Alameda, in its original complaints, aimed to get hundreds of millions of dollars in damages and injunctions requiring Grayscale to reduce its annual fee and offer redemptions.
Grayscale had argued that the fee-related claims would only be permitted if shareholders holding 10% of outstanding shares in each trust joined the suit as co-plaintiffs. Alameda was short of the threshold after one unnamed shareholder backed out of joining the litigation, the company said in an Aug. 2 motion to the Delaware Chancery Court.
Alameda said in the filing last month that roughly 45 individuals, funds and family offices indicated they are willing to participate as additional plaintiffs — and asked for more time to assemble them.
The court had given the plaintiff until Sept. 15 to respond to Grayscale’s motion to dismiss, filed in May. But Alameda is still the only plaintiff listed in an amended complaint filed that day.
Law firms Quinn Emanual Urquhart & Sullivan and Abrams & Bayliss, which represent Alameda in this case, declined to comment.
Still fighting for GBTC redemptions
The Sept. 15 complaint notes that Fir Tree Partners, 210K Capital, UTXO, Owl Creek Asset Management, Aristides Capital, and ProChain Capital expressed a willingness to participate in the suit. But “for reasons unrelated to the merits of the claims,” it adds, not enough shareholders came forward “to surmount Grayscale’s asserted 10% threshold.”
“While allegations surrounding the fees remain in the complaint, Alameda has dropped those claims, and the complaint now appears to be centered solely around the request for redemptions,” Bloomberg Intelligence litigation analyst Negisa Balluku told Blockworks. “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 changes, the new complaint said it seeks to recover “nine figures in harm” for the benefit of 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,” it states.
GBTC shares trade on OTC Markets Group’s OTCQX marketplace — and may be bought and sold at a premium or discount to the value of the trust’s underlying bitcoin.
GBTC was trading at a discount of about 19% to its net asset value (NAV) on Friday, according to YCharts.com. The discount to NAV for ETHE on Friday was roughly 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 states.
Grayscale executives have said that converting GBTC to an ETF would solve the problem of the fund’s shares trading at a discount or premium. The trust currently has $16.4 billion in assets under management.
The firm won a lawsuit against the US Securities and Exchange Commission last month. DC Circuit Court of Appeals judges ruled the SEC’s denial of GBTC’s conversion to an ETF — but approval of bitcoin futures ETFs — was “arbitrary and capricious.”
Though the decision does not require the SEC to approve GBTC’s conversion, various industry watchers have said they believe it increases the likelihood that the agency will ultimately approve the move, as well as other proposed 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 wrote in an Aug. 30 research note.
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