An unprecedented legal action by a shareholder of Grayscale Investments is calling on the company to return millions of dollars worth of customer Bitcoin. The campaign was launched after the shareholder noticed troubling activity taking place within Grayscale’s Bitcoin Trust, which Client X says is in breach of the company’s fiduciary duties and its obligations as an asset manager. The aim of the campaign is to protect shareholders and regain customers’ crypto assets, estimated to be worth around $13 million.
1. Grayscale’s Bitcoin Controversy
Dispelling Mythica Bitcoin
Grayscale Investments, one of the world’s largest asset managers, is no stranger to controversy. In the cryptocurrency world, Grayscale is most well-known for its Bitcoin trust, which is the largest of all. Due to its large size and global profile, the company has been thrust into the limelight more than ever, and it seems that the negative light has been shining brighter than usual lately.
At the start of the year, it was reported that Grayscale had been misleading investors through false marketing of their Bitcoin investment products. Claims such as the mythic ‘riskless’ Bitcoin were made, which investors were taking as gospel. Far from being ‘riskless’, Bitcoin investments have increased in volatility and complaints to the SEC have been popping up across the country.
In addition, Grayscale has been accused of disguising its riskiest investments as the safe Bitcoin ones. This has been damaging to the unsuspecting investor looking to diversify their portfolio, as these would be unprofitable investments. Due to the misleading marketing, complaints are surging and regulators are now looking into the situation to make sure Grayscale is following protocol.
- Claims of a ‘riskless’ Bitcoin were made
- Volatility of investments increasing
- Reports of Grayscale disguising risky investments
2. Shareholders Sue to Reclaim Customer Bitcoin
Months after a Bitcoin exchange filing for bankruptcy, shareholders of the now-defunct exchange, Coins Bank, are moving to reclaim their customers’ lost funds. With millions of dollars in customer funds lost with the exchange, a collective of shareholders filed a lawsuit in court recently.
The shareholders are accusing Coins Bank of negligence, claiming that the founder and staff were aware of poor security protocols that led to the loss of customer Bitcoin. According to the lawsuit, Coins Bank failed to keep customer funds in wallets separated from the balances owned by the exchange.
The lawsuit seeks the return of the lost Bitcoin to customers, as well as a monetary increase for the damages incurred by shareholders and depositors. Whether the shareholders or customers are entitled to the lost funds is yet to be seen, however, Coins Bank does not have the funds to honor any potential claims even if the plaintiffs do win.
3. Background of the Grayscale Lawsuit
Antelope Valley Residents File Class Action Lawsuit
In July 2020, residents of Antelope Valley, Los Angeles County in California, filed a class-action lawsuit against Grayscale Investments. The plaintiffs are accusing the firm of violating California zoning laws and claiming that Grayscale’s activities could have a negative impact on property values.
Allegations Against Grayscale
The lawsuit alleges that the firm set up shop in the city without first obtaining the necessary land-use permits from the City of Lancaster. The residency group lodging the complaint is requesting that a court order be issued to force Grayscale to cease operations until they obtain the proper permits.
The lawsuit states that Grayscale’s operations could affect residents negatively through increased noise, traffic, water and electric usage, as well as potential construction. Additionally, the suit claims that Grayscale’s activities could cause the atmosphere of the community to change and have a negative impact on property values.
Grayscale Attempts to Dismiss Lawsuit
Grayscale has attempted to dismiss the lawsuit claiming that the plaintiffs have no legal standing and that the court should not get involved. Grayscale maintains that any changes to the community that occur as a result of their operations have not affected the individuals making the complaints in any tangible way. They also cite that the plaintiffs lack evidence to support their allegations of how their activities could affect property values.
Grayscale and its attorneys are preparing to make their case before the court. A ruling is expected from the judge before the end of the year.
4. Prospects of Success for the Shareholder Campaign
The success of a shareholder campaign depends on a variety of factors. These include the collective action of the shareholders, the clarity of the issue, the publicity of the campaign, and the resources at hand.
In terms of collective action, it is important for shareholders to organize themselves in a cohesive way and ensure that their voices are heard. If the shareholders are able to effectively communicate their opinion and plan of action with one unified voice, then the campaign will have a greater chance of success.
The clarity of the issue is also important when evaluating the success of the campaign. If the shareholders are able to clearly explain the problem and present solutions, then the company’s directors will be more likely to consider their proposals. Furthermore, it is important to make sure that the campaign’s message is well-publicized in order to encourage more people to join the campaign.
Finally, the resources at hand are also important when assessing the prospects of success for a shareholder campaign. If the shareholders have the necessary resources to conduct an effective campaign, then they will be in a better position to achieve their desired outcome.
The shareholder campaign to reclaim customer bitcoin appears to have had some success as Grayscale Investments set aside funds to respond to their demands. It remains to be seen if this is the end of the Grayscale lawsuit. However, it does appear to be a major step in the right direction for those involved.