Why Are Major Corporations Dragging Strategy to Court Over Its Bitcoin Bet?
Bitcoin's volatility strikes again—this time in the courtroom. A growing list of firms are slapping lawsuits on Strategy, alleging mismanagement of its crypto holdings. Here's why the legal heat is turning up.
The Backlash: When HODLing Goes Wrong
Strategy's aggressive Bitcoin accumulation seemed genius during bull runs. Now, shareholders claim reckless exposure to crypto's wild swings. Cue the lawyers.
Regulatory Side-Eye
Watchdogs hover like vultures—because nothing unites bureaucrats faster than a chance to scold crypto gambles gone sideways. Bonus points if they can fine someone.
What's Next?
Win or lose, this case sets a precedent: publicly traded firms playing crypto roulette might need better armor. Or at least deeper pockets for legal fees.
Funny how 'disruptive innovation' always looks smarter before the subpoenas arrive.
Lead plaintiff strategy
Each of the five firms has sent multiple press releases trying to attract more plaintiffs. Many of them prominently remind potential participants of the July 15 deadline for when a judge will choose a lead plaintiff. Once that happens, the rest of the plaintiffs will be consolidated under that plaintiff’s class action.
But law firms don’t just want a lot of plaintiffs; they want to secure the biggest investors possible, Pritchard explained. That’s because the Private Securities Litigation Reform Act of 1995 says that courts should award the lead plaintiff spot to someone who’s volunteered to assume that role and has the largest losses.
“The theory is that a plaintiff with more skin in the game will oversee the case and the lawyers,” Lipton said. “Institutions are favored, as well, because again they are more likely to provide necessary oversight.”
It’s not clear yet if any of MSTR’s largest holders have signed on to become plaintiffs in the competing class actions. As of an October SEC filing, Strategy co-founder and Executive Chairman Michael Saylor is still the single largest shareholder with 19,998,580 shares, worth almost $7.8 billion at the current MSTR price of $389.50.
But there are large institutions in the mix, including Vanguard Group with an 8.55% stake, BlackRock and Capital International Investors with 5.8% stake each, Susquehanna Securities with a 4.8% stake, and Jane Street Group with a 4.7% stake in the company.
The value of Strategy’s 592,345 BTC recently climbed above $63 billion, according to bitcointreasuries.net. The lawsuit frenzy kicked off after Strategy warned investors in April that it was unlikely to report a Q1 profit because of the nearly $6 billion in unrealized losses on its BTC holdings.
In an SEC filing, the company said it “may not be able to regain profitability in future periods, particularly if we incur significant unrealized losses related to our digital assets.” The company went on to report a $16.49 per common share decline in Q1.
In early April, the company’s 528,185 bitcoin was worth approximately $41.3 billion. Strategy spent a whopping $7.7 billion buying BTC in Q1 at an average price of $95,000 per coin. But by the time the company needed to file its Q1 earnings report, the price of BTC had sunk to about $82,000 per coin. It has since rebounded to about $107,000, as of this writing.
The company did not immediately respond to a request for comment from Decrypt. But it has been acknowledging the lawsuits in 8-K filings with the SEC.
In each one it repeats: “We intend to vigorously defend against these claims. At this time, we cannot predict the outcome, or provide a reasonable estimate or range of estimates of the possible outcome or loss, if any, in this matter.”
Edited by James Rubin
