Osprey Funds Accuses Grayscale of ‘Unfair’ Practices in Lawsuit

Digital asset manager Osprey Funds has filed a suit in a U.S. court against Grayscale Investments, operator of the world’s largest Bitcoin trust, claiming that the firm misrepresented the likelihood that the trust could ever become an exchange-traded fund (ETF).

Osprey, which runs a rival Bitcoin trust (OBTC), alleged in documents filed to Connecticut’s Superior Court that its competitor had engaged in “unfair and deceptive acts and unfair competition in the asset management industry.”

The company accuses Grayscale of advertising its Bitcoin Trust (GBTC) on the basis that converting it into a Bitcoin ETF at some point in the future was a “foregone conclusion.”

Grayscale, like other firms, has been rebuffed by the Securities and Exchange Commission (SEC) when trying to create a Bitcoin ETF. So far the regulator has not approved any crypto ETF for launch in the U.S.

While Grayscale has continued to fight the decision, calling the SEC’s reasoning “illogical” earlier this month, Osprey is now claiming that Grayscale managers knew giving investors access to a Bitcoin ETF was “never likely to happen.”

Grayscale “launched campaign after campaign” to persuade investors that a conversion to an ETF was “inevitable,” the suit alleges. “Grayscale knew that this message was false.”

Osprey also claims that Grayscale's supposed “false and misleading advertising and promotion” is the only reason it has managed to snap up a 99.5% share in a market in which Osprey is the only other player.

“Osprey has lost management fees and profits to Grayscale as a result of its unfair trade practices,” the suit alleges.

Lawyers for Osprey suggested that the firm should be awarded damages based on profits and fees it has supposedly missed out on as a result of Grayscale’s conduct.

“The lawsuit filed by Osprey Funds against Grayscale Investments is frivolous," a Grayscale spokeswoman told Decrypt via email.  "The conversion of GBTC to an ETF is the best long-term product structure for Grayscale’s investors, and approval of a spot Bitcoin ETF in the United States would directly benefit our industry peers. At Grayscale, we remain confident in our common sense, compelling legal arguments, and we look forward to a final decision from the D.C. Court of Appeals by Fall 2023.”

Decrypt has contacted Osprey representatives for comment.

The latest challenge to Grayscale, DCG

Earlier this month, Osprey’s founder and CEO Greg King published an open letter to Barry Silbert, head of Grayscale’s owner Digital Currency Group (DCG), arguing that Osprey should take over as sponsor of GBTC.

“Grayscale and Osprey are the only providers with the required skillset [to manage GBTC], but only Osprey has the trust,” he wrote.

His firm is not the only one with a bone to pick with Grayscale and its owner.

Earlier this year, Gemini’s Cameron Winklevoss made a string of accusations against Silbert and demanded that he step down. Winklevoss and his twin brother, Tyler, are now mulling suing Silbert and DCG over an unpaid loan they made to now-bankrupt Genesis Global.