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Bitwise Hit With a Lawsuit: Investors Demand $2 Million in Damages

source-logo  beincrypto.com 10 July 2024 08:40, UTC

Bitwise Asset Management is facing a lawsuit from Vandelay Industries, which is representing the Mukamal family. The suit accuses Bitwise and its top executives of significant financial misconduct and seeks $2 million in damages.

The controversy began with the Mukamal family’s early 2018 investment of about $1.3 million in the Bitwise HOLD 10 Private Index Fund. This family includes a retired nurse and her two sons, Theodore Mukamal, a lawyer, and Andrew Mukamal, a fashion stylist.

Why Vandelay Industries Filed a Lawsuit Against Bitwise

By 2020, tensions escalated as Bitwise proposed shifting the fund from private placement to a publicly traded entity on over-the-counter (OTC) markets. Concurrently, management fees increased by 25%. According to the plaintiffs, these changes were forced upon them during the COVID-19 market downturn, significantly restricting their options.

“Plaintiffs’ “choice” between converting or selling out at a fire sale price was not a real choice at all; Plaintiffs had no real choice but to consent to the conversion,” a legal document seen by BeInCrypto mentioned.

Read more: Crypto Hedge Funds: What Are They and How Do They Work?

The lawsuit also highlights investments totaling $4.85 million in 2021 under new terms that Bitwise executives allegedly misrepresented. These actions purportedly locked the Mukamals into less favorable conditions. Consequently, based on net asset value calculations during early 2024, the Mukamal family had to bear a financial loss of nearly $1.93 million.

That being said, Vandelay Industries alleges Bitwise of the following:

  • Breach of Fiduciary Duty
  • Negligence
  • Negligent Misrepresentation
  • Fraud
  • Conspiracy to Commit Fraud
  • Violation of Section 10(b) of the Securities Exchange Act of 1934

This legal battle is spotlighting broader industry practices, especially how investment firms manage disclosures and transitions amid market volatility. Valued at $500 million in 2021 and managing about $3 billion in assets, Bitwise draws support from influential investors such as Daniel Loeb and Stanley Druckenmiller.

This backing adds significant public interest and complexity to the proceedings.

Moreover, the implications of Bitwise’s legal issues could extend far beyond the courtroom. The legal battle might set precedents for the management of crypto funds and the required level of investor communication transparency.

In an interview with BeInCrypto, a Bitwise spokesperson claimed that Theodore Mukamal has a history of threatening and suing other people, former employers, and companies to pursue personal gain.

“Theodore has repeatedly signed documents confirming that he understands and accepts the risks and details of the Bitwise digital asset funds he chose to invest in. Earlier this year, he reached out to Bitwise, threatening to sue and smear Bitwise’s reputation in the press unless he was paid a large sum of money. We believe his claims are utterly without merit, and we intend to dispute them vigorously,” a Bitwise spokesperson told BeInCrypto.

Bitwise is also the issuer of the spot Bitcoin exchange-traded fund (ETF), Bitwise Bitcoin Fund (BITB).

According to data from SoSoValue, BITB has attracted inflows of $2.08 billion as of July 5. The ETF has net assets worth $2.18 billion.

Read more: How To Trade a Bitcoin ETF: A Step-by-Step Approach

Bitwise (BITB) ETF Flows. Source: SoSoValue

Last week, Bitwise updated its S-1 filings for the spot Ethereum ETF.