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Grayscale Investments has filed a lawsuit against the U.S. Securities and Exchange Commission (SEC) after its request to convert its Grayscale Bitcoin Trust (GBTC) into a spot-based Bitcoin (BTC) exchange-traded fund was refused (ETF).
It said on Wednesday that its chief legal strategist, former U.S. attorney general Donald B. Verrilli Jr., has filed a petition for review with the U.S. Court of Appeals for the District of Columbia Circuit.
Verrelli stated that the most recent decision demonstrates that the SEC is acting "arbitrarily and capriciously" by "failing to apply consistent treatment to similar investment vehicles" and that he will pursue legal action based on the SEC's alleged violation of the Administrative Procedure Act (APA) and the Securities Exchange Act (SEA).
Grayscale Investments, which manages $12.92 billion in assets in its GBTC, has been awaiting a decision from the SEC since applying on October 19, 2021, to convert its flagship Bitcoin trust into a spot-based ETF.
The application was denied “to protect investors and the public interest,” according to a filing from the securities regulator on Wednesday since the plan failed to explain how it is “designed to prevent fraudulent and manipulative acts and practices.”
The judgment occurred a whole week before the July 6 deadline and on the same day that Bitwise’s Bitcoin exchange-traded product was also rejected (ETP).
In a statement released on Wednesday, Michael Sonnenshein, CEO of Grayscale, expressed “deep disappointment” and “vehement disagreement” with the SEC’s decision to refuse their application.
“We will continue to leverage the full resources of the firm to advocate for our investors and the equitable regulatory treatment of Bitcoin investment vehicles,” he stated.
James Seyffart, an ETF analyst at Bloomberg Intelligence, told his 19,400 Twitter followers that while the case has been filed, a court decision on the subject is not expected until Q3 2023 to Q1 2024, implying that the GBTC may not go forward anytime soon.
Grayscale’s legal team has been preparing for a potential dispute with the SEC. Former U.S. solicitor general Donald B. Verrilli Jr. joined the firm’s legal team earlier this month.
Grayscale’s legal team also consists of attorneys from Davis Polk & Wardwell LLP and its in-house counsel, including chief legal officer Craig Salm.
Michael Sonnenshein, the chief executive officer of Grayscale, told Bloomberg in March that his company would consider filing a lawsuit under the Administrative Procedure Act (APA) if the financial regulator refused the application for its Bitcoin Spot ETF.