ETF issuer Osprey seeks judicial review of its unsuccessful case against Grayscale

Osprey Funds is challenging a Connecticut court ruling in its $2M lawsuit against asset manager Grayscale, claiming unfair trade practices.

The challenge by Osprey Funds, filed on Feb. 10 in a Connecticut Superior Court, came after a Feb. 7 ruling by judge Mark Gould that favored Grayscale. Osprey claims that the judge’s ruling was made “before the close of discovery,” and added that the ruling expanded the scope of an exemption under the Connecticut Unfair Trade Practices Act (CUTPA).

Court sides with Grayscale, but Osprey fights back

Osprey first sued Grayscale and Delaware Trust Company, the Trustee of Grayscale’s spot Bitcoin ETF (exchange-traded fund), in January 2023. Osprey accused both parties of falsely advertising the Grayscale Bitcoin Trust (GBTC) to the market. 

Osprey alleges that Grayscale misled investors in the competitive US Bitcoin ETF market when it said that its GBTC fund will be converted into an ETF even though clearance for this conversion was not given at the time. This move, according to Osprey, gave Grayscale a competitive edge in the US Bitcoin ETF market, allowing it to build a dominant position.

However, Judge Gould decided in Grayscale’s favor and concluded that Osprey’s allegations came under the CUTPA’s exemption for securities transactions. He further stated that at the time of the complaint, Osprey and Grayscale were the only two asset managers providing trust-based Bitcoin products with ticker exposure.

Osprey argued against the judge’s ruling in the Grayscale case, and said that its complaint is about unfair competition caused by false advertising, and not regarding securities transactions. The firm also maintains that its assertions should be considered through the perspective of false advertising statutes rather than securities rules, rendering the exemption ineffective.

Grayscale declined to settle with Osprey in two-year-long lawsuit

Osprey’s legal tussle with Grayscale has lasted more than two years now. Osprey, which offers investors the Osprey Bitcoin Trust (OBTC), claimed Grayscale’s false marketing helped the asset manager build a dominant position in the market. 

Despite the lawsuit with Osprey at the time, Grayscale was able to win a landmark case against the United States Securities and Exchange Commission (SEC) in 2023, resulting in the approval of GBTC’s ETF conversion in January last year.

Osprey did offer to settle its claims against Grayscale for slightly less than $2 million in July last year. Grayscale declined the offer. As a result, Osprey is now requesting a reconsideration of the Connecticut judge’s decision, claiming that its legal arguments against Grayscale’s alleged misrepresentation of its GBTC conversion to investors were wrongly discarded.

Following a failed acquisition of its Osprey Bitcoin Trust with Bitwise last month, the company revealed ambitions to convert its OBTC fund into a spot Bitcoin ETF. While challenging Grayscale in court, Osprey is also attempting to increase its footprint in the competitive cryptocurrency ETF market.

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