Fir Tree disputes what it calls Grayscale’s ‘latest excuse’ for obstructing GBTC redemptions

The lawsuit lists funds managed by Fir Tree Capital Management — also known as Fir Tree Partners — as plaintiffs and names Grayscale and the Trust as defendants. It alleges that Grayscale prohibits redemptions to enrich itself and its subsidiaries.

Grayscale has for years cited the Securities and Exchange Commission’s Regulation M as the primary reason it cannot offer redemptions for shareholders, Fir Tree said in a statement.

“However, since we filed our case for Books and Records last year, Grayscale began to back down by admitting in its year-end letter to investors – and again during its recent Twitter Spaces – that Reg M only applies if GBTC is created and redeemed at the same time will be shares,” Fir Tree’s statement said. “Put simply, Reg M is not preventing Grayscale from allowing share redemptions and Grayscale knows it.”

Now, Grayscale claims it needs an exemption from the SEC’s takeover bid rules to allow redemptions, Fir Tree’s statement said.

“This apology is as strange as the last one as takeover bids by issuers are common and not controversial,” the statement said.

Grayscale may announce a takeover bid for a fixed number of shares at any time, provided it makes the bid at a fixed price — or net asset value — and keeps it open for 20 business days, Fir Tree’s statement said.

“It would involve little more than Grayscale filing a brief schedule TO with the SEC on the day of the announcement,” the statement said.

If Grayscale believes that completing a takeover bid requires more, it should immediately respond to a public request from Fir Tree in December 2022 to explain “the pricing, funding source and design of its proposal,” the statement said by Fire Tree.

Fir Tree made its public inquiry after Michael Sonnenshein, CEO of Grayscale Investments, mentioned the possibility of a takeover bid in his year-end letter to Grayscale investors last December.

The letter said a takeover bid for up to 20% of GBTC’s outstanding shares could be an option if Grayscale’s appeal against the SEC’s decision to refuse to convert GBTC into a spot bitcoin ETF is unsuccessful and Grayscale sees no opportunity for “legal or regulatory clarity” would allow GBTC to convert into an ETF within a reasonable timeframe.

During the Twitter Spaces event, Mr. Sonnenshein said that Grayscale would “need to work proactively with the SEC to obtain an exemption from existing tender bid rules in order for the tender bid to be fair and equal for all (GBTC) shareholders.” The CEO’s year-end letter included similar language regarding the need for an SEC relief.

If Grayscale reaches a point where it is working on a takeover bid, it would mean that the SEC continues to block its efforts to create the proposed spot bitcoin ETF and that the SEC has “closed the door on further investor protection.” said Mr. Sonnenshein in his Twitter Spaces comments.

In its statement, Fir Tree accused Grayscale of stepping up its “selfish campaign to blame the SEC for the problems Grayscale caused,” adding that GBTC shareholders would pay the price.

“We look forward to correcting Fir Tree Partners’ critically misinformed allegations in the Delaware Court of Chancery,” a Grayscale spokeswoman said in an email last week when asked to answer Fir Tree’s testimony answer.

A spokeswoman for Fir Tree declined to comment beyond the statement last week.