FTX debtors file lawsuit against Grayscale Investments

Yahoo Finance crypto reporter David Hollerith breaks down the latest lawsuit filed by FTX debtors against crypto and digital asset management company Grayscale Investments.

Video transcript

- FDA debtors are filing a lawsuit against Grayscale Investments. Our crypto reporter David Hollerith has a latest on that story. Hey, David.

DAVID HOLLERITH: Hey, Seana. Yeah. So this just came out in a press release. FDA is alleging through its affiliate firm Alameda Research, once a hedge fund for Sam Bankman-Fried, that Grayscale, if they were to lower their fees and stop preventing redemptions, would give FTX effectively $550 million more, or approximately 90% more than the current value that FTX shares are today.

So this is Grayscale's Bitcoin and Ethereum trust, which both trade at hefty discounts because they can't automatically be redeemed and created, as they are closed-ended funds. So what's been going on here is, actually, shareholders for Grayscale Bitcoin Trust have raised similar issues, with other asset managers coming out to propose taking over the trust. And while most of that has been a bit of a PR campaign, it looks like FTX is also going to try that as a way to maximize value for shareholders.

The CEO under bankruptcy for FTX John Jay Ray saying, we will continue to use every tool we can to maximize recoveries for FTX customers and creditors. And so their goal, ultimately, is to unlock the value that's being suppressed by Grayscale's current situation, according to him. A Grayscale spokesperson also got back to us. And they've said that the lawsuit filed by Alameda is misguided.

They also said that Grayscale has been transparent about its efforts to obtain regulatory approval to convert their Bitcoin ETF, or Bitcoin trust fund, into an in exchange-traded fund. Now, notably, tomorrow Grayscale is going to start their oral arguments in their lawsuit against the SEC, which is aimed at trying to get approval for that Bitcoin ETF.