Osprey Seeks to Strengthen Case Against Rival Crypto Firm Grayscale

On Wednesday, April 10, 2024, Osprey Funds filed a request to amend its complaint against Grayscale Investments and its Bitcoin Trust in an ongoing lawsuit in Bridgeport Superior Court.

The case involves allegations that Grayscale used misleading advertising campaigns to trap customers in its Bitcoin investment products. Osprey, a competitor in the cryptocurrency asset management space, claims Grayscale’s actions diverted business away from Osprey’s similar products.

In its original complaint filed in January 2023, Osprey argued Grayscale misled investors about the future conversion of its Bitcoin trust to an exchange-traded fund (ETF). Osprey said regulators had rejected such a conversion but Grayscale continued promoting it as likely to happen. Grayscale also allegedly portrayed its services as transparent, low-risk, and with a proven track record, which Osprey says is untrue given Grayscale’s regulatory and legal issues.

Osprey is seeking monetary damages and to bar Grayscale from further misleading promotions. Grayscale tried unsuccessfully to have the case dismissed last fall. In March, the court denied Grayscale’s motion to re-argue the dismissal request.

In its new request, Osprey seeks to supplement its original complaint with additional details about Grayscale’s actions. The filing claims Grayscale knowingly relied on inflated data from an affiliate’s overleveraged deals with the now-collapsed Three Arrows Capital hedge fund. Osprey also provides more specifics on Grayscale’s relationship with affiliates that it says led to excessive fees and conflicts of interest.

The amended complaint aims to address issues recognized by the court in Grayscale’s failed dismissal attempts. By bolstering its allegations, Osprey hopes to avoid similar problems during further legal proceedings. Grayscale reportedly may object to the amendments but has not yet given specific grounds.