Bitwise Lawsuit: Investors Claim $2 Million in Damages
Bitwise Lawsuit – Bitwise Asset Management finds itself embroiled in a legal battle with Vandelay Industries, representing the Mukamal family, who allege significant financial misconduct. The lawsuit, seeking $2 million in damages, centers on events stemming from the family’s $1.3 million investment in the Bitwise HOLD 10 Private Index Fund in early 2018. The Mukamal family comprises a retired nurse and her two sons, Theodore Mukamal, a lawyer, and Andrew Mukamal, a fashion stylist.
Background and Allegations
The controversy escalated in 2020 when Bitwise proposed shifting the fund from private placement to a publicly traded entity on over-the-counter (OTC) markets, accompanied by a 25% increase in management fees. Amid the COVID-19 market downturn, the plaintiffs claim these changes were imposed, limiting their options severely. According to legal documents, the Mukamal family felt coerced into agreeing to the fund’s conversion, viewing it as their only viable option.
By 2021, additional investments totaling $4.85 million were made under allegedly misrepresented terms, further disadvantaging the Mukamals. This mismanagement purportedly led to a significant financial loss of nearly $1.93 million based on early 2024 net asset value calculations.
Allegations Against Bitwise
Vandelay Industries asserts several legal claims against Bitwise, including:
- Breach of Fiduciary Duty
- Negligence
- Negligent Misrepresentation
- Fraud
- Conspiracy to Commit Fraud
- Violation of Section 10(b) of the Securities Exchange Act of 1934
Industry Implications and Response
This legal dispute highlights broader issues in the investment industry, particularly regarding transparency during transitions and market volatility management. Bitwise, valued at $500 million in 2021 with approximately $3 billion in assets under management, boasts backing from influential investors like Daniel Loeb and Stanley Druckenmiller, adding complexity and public interest to the case.
The outcome of this lawsuit could set precedents for how crypto funds manage investor communications and disclosures moving forward.
In response to these allegations, a Bitwise spokesperson defended the company, citing Theodore Mukamal’s history of legal threats and disputes, alleging his claims lack merit. The spokesperson emphasized that Mukamal had previously acknowledged and accepted the risks associated with Bitwise’s digital asset funds.
Bitwise’s ETF Ventures
Bitwise is also known for its spot Bitcoin exchange-traded fund (ETF), the Bitwise Bitcoin Fund (BITB). As of July 5, BITB has attracted $2.08 billion in inflows and holds net assets worth $2.18 billion. Recently, Bitwise updated its S-1 filings for a spot Ethereum ETF.
This ongoing legal battle underscores the challenges and responsibilities faced by investment firms in the cryptocurrency sector, influencing investor confidence and regulatory scrutiny.
FAQ
What is the lawsuit against Bitwise Asset Management about?
The lawsuit, filed by Vandelay Industries on behalf of the Mukamal family, accuses Bitwise and its top executives of significant financial misconduct. It alleges breach of fiduciary duty, negligence, fraud, and other violations, seeking $2 million in damages.
What prompted the Mukamal family to file the lawsuit?
The controversy began with Bitwise’s proposal to convert the HOLD 10 Private Index Fund from private placement to a publicly traded entity amidst a market downturn in 2020. This, coupled with increased management fees, allegedly limited the family’s options and led to financial losses.
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