Osprey Seeks Court Reversal in Grayscale Bitcoin ETF Dispute

ETF issuer Osprey has requested a Connecticut state court judge to review his decision in favor of Grayscale Investments, following Osprey's unsuccessful $2 million lawsuit alleging unfair trade practices related to Grayscale's Bitcoin fund.

On February 10, Osprey filed a motion for reargument with the Connecticut Superior Court, arguing that Judge Mark Gould's February 7 ruling was premature, as it was issued before the close of discovery. Osprey also contends that the ruling expanded the scope of an exemption under the Connecticut Unfair Trade Practices Act (CUTPA).

In January 2023, Osprey sued Grayscale and Delaware Trust Company, the trustee of Grayscale's flagship spot Bitcoin (BTC) exchange-traded fund (ETF), alleging that Grayscale had falsely advertised its Grayscale Bitcoin Trust (GBTC). Osprey claimed that Grayscale presented the conversion of its trust into an ETF as a foregone conclusion, despite knowing that access was unlikely to happen.

In his February 7 ruling, Judge Gould sided with Grayscale, stating that Osprey's suit involved accusations about buying and selling securities, which is exempt from the CUTPA. He also noted that at the time of Osprey's suit, both companies were the only asset managers offering ticker-based exposure to Bitcoin through trust-based products.

A year after the lawsuit, in January 2024, the Securities and Exchange Commission (SEC) approved GBTC's conversion to an ETF. In July 2024, Osprey announced that it would settle its claims against Grayscale for just under $2 million, but Grayscale did not accept the settlement.

In its February 10 motion, Osprey argued that Judge Gould's ruling overlooked the differences between how the Federal Trade Commission (FTC) and Connecticut courts treat deceptive advertising, and how the FTC and courts treat securities transactions covered by Connecticut and federal securities laws. Osprey maintained that its claims are not about a securities transaction being fraudulent, deceptive, or otherwise actionable between the parties. Instead, Osprey's claims focus on the extent to which Grayscale's unfair competition, based on deceptive advertising, diverted market share from Osprey.

Last month, Osprey submitted an application to the SEC to convert its O