Michael Saylor’s Strategy Hit With Lawsuit Following $5.9B Bitcoin Loss

A California-based investor has accused Strategy, formerly MicroStrategy, and its executives of violating federal securities laws by making false and misleading statements, according to a complaint filed in the U.S. District Court for the Eastern District of Virginia on Friday.

In the 38-page document, Anas Hamza alleged that Strategy and its executives, including co-founder and Executive Chairman Michael Saylor, failed to disclose that “the anticipated profitability of the company’s Bitcoin-focused investment strategy was overstated.”  

The complaint, which does not specify damages, claimed that the Tysons, Virginia-based firm failed to disclose “the magnitude of losses Strategy could recognize on the value of its digital assets following its adoption of” fair-value accounting standards for Bitcoin, while touting “rosy assessments of Strategy’s performance as a Bitcoin treasury company” instead.

Hamza’s lawsuit, which is being spearheaded by lawyers at Pomerantz, also named Strategy CEO Phong Le and Chief Financial Officer Andrew Kang as defendants.

In a Securities and Exchange Commission filing, Strategy said on Monday that it plans to “vigorously defend” itself against Hamza’s claims, adding that it could not “predict the outcome, or provide a reasonable estimate” of costs associated with the legal endeavor at this time.

Strategy did not immediately respond to a request for comment from Decrypt. 

Strategy began stockpiling Bitcoin under Saylor’s leadership in 2020, and it currently holds around 576,00 Bitcoin worth $60.6 billion, based on current prices. In January, it started tracking its Bitcoin holdings at fair value, with gains and losses reported as quarterly income.

Strategy warned in early April that it was not anticipating a profitable first quarter, citing a $5.91 billion drop in the value of its Bitcoin holdings, on paper, during the three-month period. The company later disclosed a first-quarter loss of $4.22 billion, or $16.49 per share. 

Under a different accounting model, which classified Strategy’s Bitcoin holdings as an intangible asset, the firm was only required to recognize impairments if the asset’s price fell. Only in the event that Strategy sold Bitcoin, would the company “mark up” the value of its Bitcoin holdings.

Strategy’s decision to consistently highlight key performance indicators, including BTC Yield—which tracks changes in the ratio between Strategy’s Bitcoin holdings and common shares outstanding—are among ways that the company, and executives, allegedly downplayed the risks of shifting to a fair-value accounting standard for its Bitcoin holdings.

The Financial Accounting Standards Board, or FASB, approved of fair-value accounting for digital assets in 2023. Strategy was among firms that advocated for the change, stating in a letter that it “would enable us to provide investors with a more relevant view of our financial position and the economic value of our bitcoin holdings.”

Pomerantz did not immediately respond to a request for comment from Decrypt.

Edited by James Rubin