Grayscale Faces Legal Pressure as Osprey Funds Seeks to Reconsider Its ETF Ruling

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The legal scene between Osprey Funds and grayscale Investment

grayscale Investment
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Investment platform

is heating up again. Asset manager Osprey Funds is asking a Connecticut state judge to reconsider his decision that favored Grayscale in an ongoing lawsuit over unfair trading practices. This case revolves around claims that Grayscale misled investors about converting its Bitcoin trust into an exchange-traded fund (ETF). 

Why is the Osprey Upset?

Osprey believes the judge made his ruling too soon, even before all the evidence was fully reviewed. They argue that this premature decision also wrongly expanded legal protections for Grayscale. Osprey first sued Grayscale and Delaware Trust Company in January 2023, accusing them of falsely advertising that the Grayscale Bitcoin Trust (GBTC) would definitely become an ETF, which gave Grayscale an unfair advantage in the market.

Recently, Judge Mark Gould ruled in Grayscale’s favor, saying Osprey’s claims were about buying and selling securities, which are exempt from the Connecticut Unfair Trade Practices Act (CUTPA). The judge also pointed out that at the time of the lawsuit, Osprey and Grayscale were the only two companies offering Bitcoin trust products with ticker-based exposure.

Osprey’s Counterarguments

However, Osprey didn’t accept the ruling quietly. On Feb 10 soon after the rulling, they filed a motion asking the court to reconsider. They argue that their case isn’t about securities transactions but about misleading advertising. Osprey claims that Grayscale’s misleading promotions unfairly diverted customers away from them, affecting their business. They believe the judge’s ruling ignored key differences between how deceptive advertising is treated under different laws.

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Osprey’s Next Move

Interestingly, a year after the initial lawsuit, the SEC finally approved Grayscale’s Bitcoin Trust to convert into an ETF after Grayscale won a separate court case. Osprey had even offered to settle its claims for nearly $2 million in July 2024, but Grayscale declined.

Now, Osprey is pushing forward, arguing that this fight is about fairness in advertising and competition, not just about securities law. They are also working on converting their own Bitcoin Trust (OBTC) into an ETF after a failed acquisition deal with Bitwise. The outcome of this legal battle could have big implications for how crypto companies compete in the future.