World’s Largest Corporate Owner of Bitcoin Charged By Attorney General

• MicroStrategy Inc faces tax fraud charges issued by Washington, DC, Attorney General
• MSTR and founder Michael Saylor are potentially on the hook for 10s of millions of dollars.
• It’s not a good look for a firm, which has one of the world’s largest positions in bitcoin

Cloud computing software firm MircroStrategy Inc has found itself embroiled in a high-powered legal court case – its founder Michael Saylor is facing tax fraud charges. The allegation made by Washington DC Attorney General Karl Racine is that Saylor misrepresented his place of residence to avoid paying DC tax rates.

It’s a high-stakes situation, with initial estimates being that Saylor could have avoided paying $25m of taxes, and MicroStrategy could be on the hook for up to $100m. The Tweet by Karl Racine, which brought the issue to public attention, didn’t pull any punches and stated MicroStrategy helped Saylor “evade taxes he legally owes on hundreds of millions of dollars he’s earned while living in DC”. (Source: Decrypt)

The repercussions from the lawsuit extend past Saylor’s personal wealth being potentially eroded. MicroStrategy is the publicly listed company with the largest holding of bitcoin. Recent estimates suggest that as of June 2022, the firm owned 129,699 coins, which equates to somewhere near 0.6% of the entire supply of bitcoin. That position currently has a valuation close to $2.57bn

MicroStrategy is one of the crypto world’s kingpins, and the firm is also underwater on its BTC trade. The buying spree, which started in April 2020, is claimed to have an average purchase price in the region of $30,664. The money used to buy the coins was borrowed at an impressively low 1.5%. The court case adds further complications to a situation involving high amounts of leverage and positions showing an unrealised loss.

Final Thoughts

The new development forms part of a clampdown by regulators on the wider crypto sector. The sentiment is that even new innovative technologies must play by the old rules. The question is whether this corralling of the major players will ultimately bring the coins into the mainstream or leave them outside as a much less valuable high-tech novelty.

Saylor said in a statement relating to the charges: “I respectfully disagree with the position of the District of Columbia and look forward to a fair resolution in the courts.” For its part, MicroStrategy also disputed Racine’s inclusion of the company in his action. The company said the DC attorney general’s accusations “are false, and we will defend aggressively against this overreach”. (Sources: Decrypt)

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About the author: Justin Freeman

Justin is an active trader with more than 20-years’ industry experience of working for big banks and hedge funds. He has an inside knowledge of how the financial markets work, thanks to roles including trader on a $750m Event-Arbitrage desk and CRO and COO of hedge funds running a variety of strategies. From stat-arb and trend-following CTA to fixed-income relative value. Firm’s he has worked at include big banks like Citi, and prominent hedge funds including D. E. Shaw and Millennium Capital Management.

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