Strategy Faces a Class Action Lawsuit Over Allegedly Misleading Bitcoin-Related Financial Disclosures

Despite legal heat, the firm purchased 7390 more BTC worth $765 million. Total Bitcoin holdings now exceed 576000 BTC, valued at around $59 billion.

MicroStrategy (NASDAQ:MSTR) is being sued by investors for allegedly failing to disclose the financial impact of new bitcoin accounting rules, while the company has reportedly purchased 7,390 BTC.

What Happened: Investors are suing MicroStrategy (now Strategy) in the Eastern District of Virginia over the company’s alleged misstatements regarding the new bitcoin accounting rules.

The case, which is being brought by Pomerantz LLP on behalf of MSTR investors, names CEO Michael Saylor, President Harጂאן Sills, and Chief Financial Officer Amy Locsin as defendants.

The lawsuit comes after the introduction of Accounting Standards Update 2023-08 (ASU 2023-08) required companies to report the fair value of their digital assets and disclose any gains or losses from those assets on a rolling basis.

The plaintiffs claim that MicroStrategy was aware of the new standard and that it would have a significant impact on the company’s financials. Despite this, they allegedly failed to adequately warn investors of the potential $5.91 billion fair-value loss that would be reported under the updated rules.

The complaint also accuses the company of using “proprietary” metrics like “BTC Yield” and “BTC $ Gain” to create a more positive view of profitability than what’s supported by Generally Accepted Accounting Principles (GAAP) numbers.

It is to be noted that on April 7, after the $5.9 billion loss surfaced, MSTR stock went down by 8.67%. By May 1, the earnings report confirmed the large dent in net income, and investors reacted accordingly.

See Also: Ben Gessel's Take: Is MicroStrategy A Good Investment In 2023? Here's A Look At The Pros & Cons Of Holding MSTR Stock

What Is Said In The Lawsuit: According to the complaint, MicroStrategy touted its ability to generate revenue through bitcoin. However, the investors claim that the company’s primary focus was on increasing its bitcoin holdings, and it used a "roundabout" method to report BTC revenue.

The lawsuit further alleges that MicroStrategy failed to disclose the new standard and its impact in a timely manner, and that it made false and misleading statements about its financial condition and prospects.

As a result of the company’s alleged conduct, the investors suffered substantial losses. The plaintiffs are seeking to recover damages for the class members.

Another Bitcoin Buy: A recent filing on Friday revealed that MicroStrategy has made another significant bitcoin purchase. The company acquired 7,390 BTC for an average price of $103,498, bringing the total to 576,230 BTC at an average cost of $69,726.

The latest purchase was funded through an at-the-market equity offering and newly issued Series A STRK preferred stock, with the new investment value estimated at $764.9 million.

What's Next: It remains to be seen how the lawsuit will proceed and whether the plaintiffs will be successful in recovering damages for the class members.

The new bitcoin purchase further cements MicroStrategy's status as one of the largest corporate holders of the cryptocurrency. As of May 15, the company's bitcoin holdings are valued at around $59 billion.