MicroStrategy (NASDAQ:MSTR) has been a major tech play for the last two years, but not for the reasons one might expect. The stock has become closely associated with the crypto world, thanks in large part to its founder and now executive chairman, Michael Saylor. A devout Bitcoin (BTC-USD) maximalist, Saylor has helped his company mount impressive earnings simply through “hodling.” But now, he is turning into a heel for the company. The Michael Saylor tax evasion lawsuit that is cropping up may prove very costly for both him and MSTR stock.
Saylor co-founded MicroStrategy in 1989. Since then, it has chugged along as a play in the tech space. Nowadays, it creates business intelligence software and offers cloud computing services to its clients.
However, in 2020, MSTR stock began to see some serious moves as Saylor pushed a new model onto the company. Around this time, Saylor had become deeply entrenched in the cryptocurrency space — particularly through Bitcoin. He has since become a figurehead for the Bitcoin Maximalism movement. These investors ascribe to the belief that in the future, the only currency needed worldwide will be Bitcoin.
In preparation for this future, Saylor has wasted no time in using MicroStrategy to amass huge amounts of BTC. This has led to a prosperous period for MicroStrategy and its investors. Currently, the company holds almost 130,000 BTC on its balance sheet. The buying spree directly preceded the biggest price gap in MSTR stock’s history, taking shares from a $150 floor to over $1,000. Recently though, with the crypto crash, it is reporting a $3.4 billion hit to its holdings’ values.
Michael Saylor Tax Evasion Suit Hampers Hard-Hit MSTR Stock
In just two years, MicroStrategy has seen far and away some of its highest highs. But things have gotten awfully low, especially as its biggest investment’s price tumbles below $20,000. But news of a Michael Saylor tax evasion lawsuit extend to the company, making for more bad news.
Wednesday afternoon, District of Columbia Attorney General Karl Racine announced the District is suing both Michael Saylor and MicroStrategy. Racine alleges Saylor had been evading D.C. taxes by lying about his address. For the last 17 years, Racine says Saylor had evaded up to $25 million in taxes by fraudulently claiming he did not live within the District. From 2005 to 2012, Saylor says he was a Virginia resident, after which he bought a house in Miami and claimed to be living in Florida.
The suit also targets MicroStrategy itself. According to the complaint, the Attorney General’s office claims Saylor’s company assisted in the scheme by claiming on its own official documentation that Saylor did not live in D.C. Between both Saylor and MicroStrategy, a court loss could mean a penalty of up to $100 million.
MicroStrategy’s Bitcoin gravy train has carried on for well over a year now. But, recent quarters have proven less savory. The crypto crash in the second quarter inflicted a lot of pain to the company’s balance sheet, sending its value tanking. And now, that gets compounded atop these new allegations — ones which could have a deep financial impact on the company still.
It will be interesting to see how MicroStrategy navigates this suit, especially as it reckons with the volatility of its largest investment. In the meantime, the news is having a negative effect on MSTR stock prices. So far, the stock is down by about 7%, with shares tumbling to $216.
On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.