Grayscale Investments has launched a legal challenge against the Securities and Exchange Commission (SEC) after being denied its application to convert its Grayscale Bitcoin Trust (GBTC) into a spot-based Bitcoin exchange-traded fund (ETF).
On June 29, it announced that its Senior Legal Strategist, former U.S. Solicitor General Donald B. Verrilli Jr. had filed a petition for review with the United States Court of Appeals for the District of Columbia Circuit.
Verrelli stated that the latest decision shows that the SEC is acting โarbitrarily and capriciouslyโ by โfailing to apply consistent treatment to similar investment vehiclesโ and will be pursuing a legal challenge based on the SECโs alleged violation of the Administrative Procedure Act (APA) and Securities Exchange Act (SEA).
Grayscale Investments, which has $12.92 billion of assets under management in its GBTC had been waiting on a decision from the SEC to convert its flagship Bitcoin trust into a spot-based ETF since filing its application to the regulator on October 19, 2021.
According to a filing from the securities regulator on June 29, the application was disapproved โto protect investors and the public interestโ because the proposal failed to demonstrate how it is โdesigned to prevent fraudulent and manipulative acts and practices.โ
The decision came out a full week before the July 6 deadline and came on the same day as a similar rejection of Bitwiseโs Bitcoin exchange-traded product (ETP).
Michael Sonnenshein, Grayscaleโs CEO in a statement on Wednesday said they were โdeeply disappointedโ and โvehemently disagreeโ with the SECโs decision to deny their application.
Weโve filed a lawsuit against the SEC. $GBTC
โ Sonnenshein (@Sonnenshein) June 30, 2022
โWe will continue to leverage the full resources of the firm to advocate for our investors and the equitable regulatory treatment of Bitcoin investment vehicles,โ he said.ย
Addressing his 19,400 Twitter followers, James Seyffart, an ETF analyst at Bloomberg Intelligence said while the lawsuit has been filed, a court ruling on the matter is not expected until 3Q 2023 to 1Q 2024, meaning that we may not see the GBTC going forward any time soon.
Gonna retweet this because Grayscale has already filed their APA lawsuit for the $GBTC denial. Here is our *estimated* timeline of events courtesy of @NYCStein. But things are moving fast. https://t.co/ql8a43W5vs
โ James Seyffart (@JSeyff) June 30, 2022
Grayscale had been gearing up its legal team for a potential spat with the SEC. Earlier this month, the firm hired Donald B. Verrilli Jr. a former U.S. Solicitor General to join its legal lineup.ย
Other attorneys in Grayscaleโs legal line-up include attorneys at Davis Polk & Wardwell LLP and its in-house counsel, including Craig Salm, who serves as chief legal officer.
Related: Grayscale reports 99% of SEC comment letters support spot Bitcoin ETF
In March, Grayscale CEO Michael Sonnenshein told Bloomberg that his firm would consider a lawsuit under the Administrative Procedure Act (APA) should the application for its Bitcoin Spot ETF be denied by the financial regulator.
