Strategy Faces Class Action Lawsuit Over Bitcoin Investment Disclosures

A New York-based law firm has initiated a class action lawsuit against Strategy, alleging that the company made false and misleading statements regarding the profitability of its Bitcoin investment strategy. The lawsuit, filed in the United States District Court for the Eastern District of Virginia, seeks to recover damages caused by the company's violations of federal securities laws. The class action is on behalf of all persons and entities that purchased or otherwise acquired Strategy securities between April 30, 2024, and April 4, 2025.

The complaint alleges that Strategy, which has increasingly focused on purchasing and holding Bitcoin as a long-term business strategy, made materially false and misleading statements about its financial performance and the risks associated with its Bitcoin holdings. The company introduced several new key performance indicators, including "BTC Yield," "BTC Gain," and "BTC $ Gain," to measure its financial results. However, the lawsuit claims that these indicators did not accurately reflect the company's financial health, particularly after it adopted new accounting standards that required it to measure its crypto assets at fair value.

Prior to adopting the new accounting standards, Strategy accounted for its Bitcoin holdings under a cost-less-impairment model, which only required it to recognize impairments in the event of price depreciations. This model did not account for price increases unless the assets were sold. The new standards, however, required the company to recognize gains and losses from changes in the fair value of its crypto assets in each reporting period. The lawsuit alleges that Strategy failed to disclose the particular nature or scope of the expected impact of these new standards, downplaying the attendant risks and providing rosy assessments of its performance.

On April 7, 2025, Strategy disclosed that it had recognized a $5.91 billion unrealized loss on its digital assets for the first quarter of 2025, which was expected to result in a net loss for the quarter. The company warned investors that it may not be able to regain profitability in future periods, particularly if it incurred significant unrealized losses related to its digital assets. On May 1, 2025, Strategy confirmed that it had recorded an unrealized fair value loss on digital assets of approximately $5.9 billion during the quarter, stemming from applying a fair value accounting methodology to its Bitcoin assets following Bitcoin's steep depreciation in value in the first quarter of 2025.

The lawsuit alleges that Strategy's false and misleading statements regarding its Bitcoin-focused investment strategy and treasury operations, as well as its failure to disclose the risks associated with its Bitcoin holdings, caused investors to suffer significant losses. The class action seeks to recover damages on behalf of investors who purchased or otherwise acquired Strategy securities during the class period. Investors who wish to join the class action have until July 15, 2025, to ask the court to appoint them as lead plaintiff for the class.

The lawsuit highlights the crucial role of accurate risk disclosure as Bitcoin remains a major component of corporate treasuries and an influential market force. The case underscores the risks inherent in managing substantial Bitcoin assets and the potential for significant financial losses due to the volatile nature of the cryptocurrency. The outcome of this lawsuit could influence corporate strategies regarding Bitcoin investments and regulatory scrutiny of digital asset disclosures.

Industry experts, including Craig Coben, view this lawsuit as a potential threat if Bitcoin values drop further, as it could impact investor perception and corporate confidence in digital assets. The lawsuit challenges the transparency and accuracy of disclosures related to Bitcoin investments, raising questions about fair disclosure standards and the need for clearer guidelines from regulatory bodies. The potential outcomes of this lawsuit include shifts in corporate Bitcoin strategy, increased regulatory scrutiny, and fluctuations in the share market.