The disgraced former chief executive of BitInstant called a lawsuit by Tyler and Cameron Winklevoss’s Winklevoss Capital Fund a “scandalous and fantastical story,” and urged a U.S. judge to throw it out.

The Winklevosses claim that Charles Shrem used part of their 2012 investment of $750,000 in BitInstant to buy 5,000 bitcoins, then priced at $61,000, for himself. The bitcoins would be worth $32 million today. The Winklevosses sued in September accusing Shrem of fraud.

Cameron and Tyler Winklevoss.
Photographer: David Paul Morris/Bloomberg

Shrem responded Nov. 5 in papers filed in New York federal court claiming the 5,000 bitcoins were the property of a “prominent bitcoin industry...