ETF issuer Osprey wants judge to review its failed suit against Grayscale

Osprey Funds has asked a Connecticut state court judge to review his decision to hand a win to Grayscale Investments during its $2 million unfair trade suit over the asset manager’s Bitcoin fund.

Osprey filed a motion for reargument on Feb. 10 to Connecticut’s Superior Court, claiming Judge Mark Gould’s Feb. 7 ruling came “before the close of discovery” and expanded the scope of an exemption under the Connecticut Unfair Trade Practices Act.

In January 2023, Osprey sued Grayscale and Delaware Trust Company, the trustee of its flagship spot Bitcoin (BTC) exchange-traded fund (ETF), claiming they falsely advertised the Grayscale Bitcoin Trust (GBTC), which allowed it to lead the market.

In its suit, Osprey claimed Grayscale presented the conversion of its trust into an ETF as “a foregone conclusion, when it knew that access was never likely to happen.”

Judge Gould sided with Grayscale in his Feb. 7 ruling, who said that Osprey’s suit involved accusations about buying and selling securities, which is exempt from the act.

His ruling added that at the time of Osprey’s suit, it and Grayscale “were the only two asset managers in the marketplace of opportunities for trust-based products offering ticker-based exposure to Bitcoin.”

Excerpt from Judge Gould’s decision. Source: Connecticut Superior Court

A year after the suit, in January 2024, the Securities and Exchange Commission approved GBTC’s conversion to an ETF after it lost in court against Grayscale. Osprey said in July 2024 that it would settle its claims against Grayscale for just under $2 million, which Grayscale didn’t take.

Osprey said in its Feb. 10 motion that Judge Gould’s ruling overlooked the differences between how the Federal Trade Commission and Connecticut courts treat deceptive advertising and how the FTC and courts treat securities transactions covered by Connecticut and federal securities laws.

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“The limited implied exemption from CUTPA for claims based on ‘securities transactions’ has never been applied, as the Decision implicitly applied it here, to claims arising from deceptive advertising between competitors merely because they do business in the securities, asset management, or cryptocurrency industries,” Osprey wrote. 

Osprey and Grayscale weren’t part of “any ‘securities transaction’ with each other,” it added, and argued its claims aren’t about a securities transaction “being deemed fraudulent, deceptive, or otherwise actionable between the parties to it.”

“Rather, Osprey’s claims focus on the extent to which Grayscale’s unfair competition, based on deceptive advertising, diverted market share from Osprey,” the firm’s lawyers wrote.

Last month, Osprey flagged plans with the SEC to convert its Osprey Bitcoin Trust (OBTC) into a spot Bitcoin ETF after a deal to be acquired by rival Bitwise fell through.

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