Grayscale Investments to take legal action against SEC after Spot-based Bitcoin ETF Rejection 

Grayscale Investments has established a legal challenge against the Securities and Exchange Commission (SEC) after being rejected its application to convert its Grayscale Bitcoin Trust (GBTC) into a spot-based Bitcoin exchange-traded fund (ETF).

Grayscale prepares to sue SEC

grayscale-files-lawsuit-against-sec

On June 29, it informed that its Senior Legal Strategist, former U.S. Solicitor General Donald B. Verrilli Jr. had filed a petition for assessment 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 arbitrarily and capriciously by failing to apply compatible treatment to similar investment vehicles and will be seeking a legal challenge based on the SEC’s alleged violation of the Administrative Procedure Act (APA) and Securities Exchange Act (SEA).

Also Read, JP Morgan Estimates 28% upside in bitcoin

Grayscale Investments, which has $12.92 billion of assets under management in its GBTC had been waiting on a conclusion from the SEC to convert its flagship Bitcoin trust into a spot-based ETF since filing its application to the regulator last year on October 19.

As per the filings from the securities regulator on June 29, the application was disapproved to protect investors and the public interests because the proposal failed to exhibit how it is designed to contain fraudulent and manipulative acts and practices.

The judgment came out a full week before the July 6 deadline and came on the same day as a similar turndown of Bitwise’s Bitcoin exchange-traded product (ETP).

On Wednesday Michael Sonnenshein, Grayscale’s CEO in a statement said that they were deeply disappointed and vehemently disagree with the SEC’s determination to deny their application.

Further, the CEO also mentioned that they will continue to leverage the full resources of the firm to support investors and the equitable regulatory treatment of Bitcoin investment vehicles.

Addressing his Twitter followers, James Seyffart, an ETF analyst at Bloomberg Intelligence stated that while the lawsuit has been filed, a court ruling on the matter is not foreseen until 3Q 2023 to 1Q 2024, suggesting that we may not see the GBTC going forward any time soon.

Grayscale had been gearing up its legal team for a possible altercation with the SEC. Earlier this month, the firm employed Donald B. Verrilli Jr. a former U.S. Solicitor General to join its legal lineup. 

Different attorneys in Grayscale’s legal line-up include attorneys at Davis Polk & Wardwell LLP and its in-house counsel, and Craig Salm, who serves as a chief legal officer.

In March, Grayscale’s CEO told Bloomberg that his firm would consider a lawsuit under the Administrative Procedure Act (APA) should the application for its Bitcoin Spot ETF be rejected by the financial regulator.


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