United States SEC Probes Grayscale About XLM, ZEC and ZEN Trusts

Recognizing the Grayscale ‘securities law analysis’ of some firms, the United States Securities and Exchange Commission (SEC) has approached the investment asset manager for clarity about three of its trusts. 

The three less-popular crypto trusts are Stellar (XLM), Zcash (ZEC), and Horizen (ZEN). Grayscale is in the process of responding to the queries issued by the U.S SEC about these trusts specifically from the Division of Corporate Finance as well as Enforcement.

Grayscale is a leading digital currency investing and cryptocurrency asset management which is a subsidiary of Digital Currency Group. 

As of last year December, the company held about $43 billion in assets under management (AUM) which was a far cry from its $61 billion valuation. Later on, it reduced to around $20 billion. Of these assets, the value entrusted to Grayscale’s trusts runs into billions of dollars including Bitcoin (BTC) and Ethereum (ETH).

Cumulatively, XLM, ZEC, and ZEN account for about $40 million of the asset manager’s AUM. 

Grayscale Suggest That XLM, ZEC, and ZEN Are Likely Securities

The SEC started its probe into these cryptocurrency trusts in June and has had several correspondences between that time and August. 

While speaking about the Zcash trust during the June and August fillings, Grayscale said “The sponsor has been contacted by staff from the SEC’s Divisions of Corporation Finance and Enforcement concerning the sponsor’s securities law analysis of ZEC. The sponsor is in the process of responding to the SEC staff.” 

When it was time for Stellar and Horizen, the language was not different from what was said concerning Zcash. The asset names were only changed to suit the titles of the cryptocurrency trust. 

Although not part of the initial June filing for the trusts, Grayscale attested to the fact that all three trusts could be regarded as securities according to the current structures laid out in contrast to its May stance. Not overruling the possibility, the investment asset management company also mentioned that the trust could be tagged under securities in the future either by the SEC or a federal court.

Notably, this probe is an indication of the SEC’s lack of confidence in the list of Grayscale’s lineup of brokerage account-friendly crypto trusts.

Furthermore, it boils down to the SEC’s mandate to ensure regulation of the crypto market and other financial institutions. Grayscale currently has a legal brawl with the SEC, and no matter the direction of the current probe, the investment firm may not want another legal tussle.