Grayscale Investments launched a legal action against the Securities and Exchange Commission after it was denied permission to convert its Grayscale Bitcoin Trust, (GBTC), into a spot-based Bitcoin exchange traded fund (ETF).
It announced on June 29 that its Senior Legal Strategist (former U.S. Donald B. Verrilli Jr., the Solicitor General of the United States, had filed a petition to review the United States Court of Appeals District of Columbia Circuit.
Verrelli stated that this latest decision by the SEC shows that it is acting arbitrarily and capriciously by failing to apply consistent treatment for similar investment vehicles. He will pursue a legal challenge based upon the SEC’s alleged violations of the Securities Exchange Act (SEA) and Administrative Procedure Act (APA).
Grayscale Investments has $12.92 Billion of assets under its GBTC management. Since October 19, 2021, Grayscale Investments had filed its application to regulators.
According to a June 29 filing by the securities regulator, the application was rejected “to protect investors” and “to preserve the public interest” as it failed to show how it was “designed to prevent fraud and manipulative acts or practices.”
This decision was made a week before the July 6, deadline. It also came on the same day that Bitwise’s ETP (exchange-traded product) was rejected.
Grayscale CEO Michael Sonnenshein stated Wednesday that they are “deeply disappointed” in the decision of the SEC to deny their application.
We have filed a lawsuit against SEC. $GBTC
— Sonnenshein (@Sonnenshein) June 30, 2022
He stated that the firm will continue to use its full resources to advocate for investors and ensure the fair regulation of Bitcoin investment vehicles.
James Seyffart (an ETF analyst at Bloomberg Intelligence) addressed his 19,400 followers on Twitter. He stated that while the lawsuit was filed, a court decision is not expected until the 3Q-2023 to the 1Q 2024. This means that the GBTC may not be moving forward anytime soon.
I’m going to retweet it because Grayscale has already filed an APA lawsuit against Grayscale for the $GBTC denial. Here’s our estimated timeline of events, courtesy of @NYCStein Things are moving quickly. https://t.co/ql8a43W5vs
— James Seyffart (@JSeyff) June 30, 2022
Grayscale had been preparing its legal team in preparation for potential trouble with the SEC. The firm has hired Donald B. Verrilli Jr., a former U.S. Attorney. The firm has hired a Solicitor General.
Grayscale also has attorneys from Davis Polk & Wardwell LLP as well as its in-house counsel (including Craig Salm), who is the chief legal officer.
Grayscale reports that 99% of SEC comments letters support spot Bitcoin ETF
Grayscale CEO Michael Sonnenshein stated to Bloomberg in March that he would file a lawsuit under APA if the application for the Bitcoin Spot ETF was denied by the financial regulator.