How Mega Lawsuit Against MicroStrategy’s Michael Saylor Could Affect Bitcoin

District of Columbia Attorney General Karl Racine is suing mega Bitcoin bull Michael Saylor, co-founder and executive chairman of MicroStrategy, for allegedly evading more than $25 million in district taxes. The lawsuit also names MicroStrategy as a defendant, alleging that it conspired to help him evade taxes he owes.

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“Defendant Saylor deliberately avoided income taxes he owed the District by falsely claiming to reside in other lower-tax jurisdictions while maintaining his residence and place of residence in the District, including living in a luxury Georgetown waterfront penthouse and dock. several yachts on the district’s Potomac Riverfront from 2005 to the present,” the court documents state.

The AG’s office is seeking to collect unpaid income taxes and penalties from both Saylor and MicroStrategy that could total more than $100 million, according to a statement.

How the Lawsuit Affects Bitcoin

The potential effects of the lawsuit on Bitcoin, which has struggled in recent months, may be difficult to mitigate, some say.

“With volumes drying up amid a lot of inflation, we expect any story to have greater potential to move the market,” said Hayden Hughes, co-founder and CEO of platform Alpha Impact. “Michael Saylor’s IRS drama may serve to keep Bitcoin in the news for the wrong reasons. Traders on the Alpha Impact platform have braced for increased volatility on multiple exchanges, hedging positions with perpetual swaps.”

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Hughes considers the potential $100 million tax bill “an inconvenience that will not stop (Saylor) or put him behind bars.”

“The real risk here is that the lawsuit drags crypto through the mud,” he said. “Many remember the ESG (Environmental, Social and Governance) concerns raised in 2021 as a lasting impact on prices as the Bitcoin narrative was negatively impacted by the news. This litigation is sure to drag on for years, and Alpha Impact- traders have prepared for volatility, and leveraged into futures positions.”

DC lawsuit stemmed from earlier complaint

In April 2021, a whistleblower filed a lawsuit against Saylor, alleging that he had failed to pay income taxes he legally owed from 2014 to 2020, alleging, “Saylor engaged in an elaborate scheme to create the illusion that he lived in Florida , a state with no personal income tax, while he was actually a resident of the district.”

After independently investigating the whistleblower’s allegations of tax fraud, the AG filed its own complaint alleging that MicroStrategy “actively conspired with Saylor to enable his fraud, including by filing inaccurate W-2s with the address of his Florida property in instead of his home in DC, and by failing to withhold and pay DC taxes.”

MicroStrategy said in a Sept. 1 Securities and Exchange Commission (SEC) filing: “The Company believes that the District’s claims against the Company have no merit and intends to aggressively defend itself against these claims.”

As for Saylor, he told CNBC that he bought a historic house in Miami Beach and moved his home there from Virginia a decade ago.

“Although MicroStrategy is based in Virginia, Florida is where I live, vote and have filed for jury service, and it is at the center of my personal and family life,” he told CNBC. “I respectfully disagree with the position of the District of Columbia, and look forward to a just resolution in the courts.”

Saylor, who remains extremely bullish on Bitcoin despite the asset’s slump, stepped down from his CEO role on August 8 to become executive chairman.

“Bitcoin is a miracle happening right before our eyes,” he tweeted on August 31.

As of June 30, 2022, the book value of MicroStrategy’s 129,699 Bitcoins was $1.988 billion. Also as of June 30, the initial cost basis and market cap of MicroStrategy’s Bitcoin were $3.977 billion and $2.451 billion, respectively, reflecting an average cost per bitcoin of approximately $30,664 and a market price per bitcoin of $18,895.02, according to financial releases.

Several experts agree that the money Saylor allegedly owes is a drop in the bucket for him since he has a net worth of $1.6 billion, according to Forbes.

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