Strategy Faces Lawsuit Over Bitcoin Loss Disclosure

Pomerantz LLP, a New York-based law firm, has initiated a class action lawsuit against Strategy, formerly known as MicroStrategy, and its executive chairman, Michael Saylor. The lawsuit, filed in the U.S. District Court for the Eastern District of Virginia, alleges that Strategy violated federal securities laws by misleading investors about the profitability of its Bitcoin investment strategy. The complaint asserts that the company emphasized gains while downplaying the risks associated with Bitcoin’s price volatility.

The lawsuit follows a significant event in April when Strategy filed a report with the U.S. Securities and Exchange Commission revealing an unrealized Bitcoin loss of $5.91 billion. This loss was a result of a decline in Bitcoin prices and changes to accounting rules. The company’s stock price dropped by 8% immediately after the filing, and Strategy later confirmed the figures in its Q1 earnings report. The lawsuit claims that the company had previously avoided such disclosures, leading to a materially misleading public statement.

Pomerantz argues that Strategy failed to present a balanced view of its Bitcoin holdings. The company is accused of misrepresenting the proceeds of Bitcoin transactions and omitting important risk factors that could influence investor decisions. The class action is open to all investors who bought Strategy shares during the specified period, with investors given until July 15 to join the suit.

The updated fair value accounting rules now require companies to record Bitcoin’s real-time price changes. Previously, firms only reported losses when selling assets or when prices dropped. The new method forced Strategy to reflect actual losses even without a sale, highlighting the scale of Strategy’s exposure to crypto market swings. Pomerantz claims that Strategy highlighted selective metrics like BTC Yield and BTC Gain while ignoring the downside risks tied to Bitcoin’s volatility. The lawsuit aims to recover investor losses and hold the company accountable.

Despite the legal challenge, Strategy still holds the largest corporate stash of Bitcoin, owning roughly 600,000 BTC, valued at around $65 billion. The company began accumulating Bitcoin in 2020, funding purchases through debt, equity, and operating income. Its stock has grown over 3,300% since then. The lawsuit underscores the risks and complexities involved in corporate Bitcoin investments, highlighting the importance of transparent and comprehensive disclosures to investors.