In a legal saga that continues to unfold, Alameda Research finds itself requesting an extension until September 15 to gather co-plaintiffs for its lawsuit against Grayscale. This lawsuit, with its high stakes and intricate twists, aims to unlock billions of dollars in investments ensnared within Grayscale's Trusts.
As an affiliate of FTX, Alameda Research is determined to respond comprehensively to Grayscale and surprisingly didn't oppose it, as indicated by recent court filings. Alameda has articulated that it needs additional time due to the unexpected exit of an anticipated co-plaintiff, one whose participation was crucial for the lawsuit's advancement.
In a baffling turn of events, this co-plaintiff abruptly reversed its decision to join the litigation, without providing any rationale for the change of heart. Alameda's spokesperson has confirmed, "The shareholder declined to explain why it had changed its mind."
The extension sought by Alameda holds strategic significance. It provides the opportunity to gather the necessary "sufficient shares" from investors in two of Grayscale's trusts. A derivative lawsuit, which shareholders initiate on behalf of a corporation, necessitates a minimum of 10% of outstanding shares. This requirement stems from Grayscale's agreement for its Bitcoin Trust (GBTC).
The legal showdown commenced in March, with Alameda suing Grayscale and its parent company Digital Currency Group (DCG). The lawsuit's ambit encompassed not only Grayscale's CEO Michael Sonnendhein and DCG's owner Barry Silbert but also raised claims against the entities themselves.
Lodged in the Delaware Court of Chancery, the lawsuit challenged what it termed an "improper redemption ban" afflicting Grayscale's Bitcoin and Ethereum Trust. This perceived restriction, Alameda contended, curtailed FTX's ability to unlock around $250 million in value for its debtors and creditors.
The lawsuit's overarching aspiration is to pave the way for unlocking an astounding "value of $9 billion or more for shareholders." This monumental shift is envisioned through the implementation of a redemption plan for both trusts, coupled with a reduction in associated fees. FTX elucidated this objective through a press release that illuminated the strategic goals of the lawsuit.
FTX's tumultuous history, marked by its collapse last November, cast a shadow over its sister company, Alameda. The latter was accused of embarking on risky financial ventures, mingling customer funds inappropriately. Sam Bankman-Fried, the founder of both entities, faced an array of criminal charges stemming from the downfall of these enterprises.
As FTX's new leadership, spearheaded by John Ray III, endeavors to mitigate the financial impact on debtors and creditors through Chapter 11 bankruptcy, the lawsuit against Grayscale assumes renewed significance. It challenges the "redemptions of shares," which Grayscale contends are currently unauthorized.
The broader context involves Grayscale's ongoing tussle with the Securities and Exchange Commission (SEC). If successful, this legal battle could pave the way for Grayscale to transform its Bitcoin Trust into a Bitcoin ETF, resolving redemption challenges. However, the SEC's concerns about market manipulation in the cryptocurrency space have cast a shadow over the approval of such ETFs.
The illiquid nature of GBTC, as highlighted by Su Zhu, co-founder of Three Arrows Capital, contributed to his company's collapse amidst a credit crunch following the high-profile implosion of Terra and Luna last summer.
A spokesperson from Grayscale dismissed Alameda's lawsuit as baseless, stating, "The lawsuit filed by Sam Bnkman-Fried's hedge fund, Alameda Research, is entirely without merit."
While Alameda secures an extension to gather co-plaintiffs, the legal landscape continues to shift. With over 45 parties already expressing interest, the next six weeks promise to be a crucial juncture. As the intricate web of litigation and finance unravels, the outcome of this legal entanglement could reshape the path forward for both Alameda and Grayscale.