Written by: FinTax
1. Event Overview
In early July 2025, the law firm Pomerantz filed a class action lawsuit against Strategy (formerly known as MicroStrategy, NASDAQ: MSTR) in the United States District Court for the Eastern District of Virginia on behalf of all individuals and entities that purchased or otherwise acquired Strategy securities between April 30, 2024, and April 4, 2025. The lawsuit alleges that Strategy and some of its senior executives are legally responsible for securities fraud related to misleading data on Bitcoin investment profits and accounting standards, as stipulated by Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. The lawsuit seeks to recover investment losses incurred as a result. As crypto assets increasingly become a vital component of corporate strategic asset allocation, this lawsuit may signal a critical reassessment of accounting and disclosure standards for crypto assets by regulators and market participants.
2. Strategy's Bitcoin Strategy
The renowned Strategy was initially a software company focused on enterprise-level business intelligence (BI), cloud-based services, and data analytics, providing data visualization, report generation, and decision support tools to large corporate clients. Although its traditional software business has a certain level of recognition in the industry, growth has been slow, with revenue and profit performance remaining relatively stable.
Since 2020, under the leadership of founder Michael Saylor, the company has officially established a Bitcoin-centric asset allocation strategy, positioning it as a primary reserve asset alternative to cash. This transformation marked Strategy's significant investment in the Bitcoin market, with continued accumulation through multiple rounds of financing. The company not only used its own funds to purchase Bitcoin but also obtained low-cost capital through convertible bonds, preferred notes, and Bitcoin-collateralized loans, thereby amplifying its investment scale. Subsequently, Strategy transformed into a leveraged Bitcoin financial company rather than merely a corporate software company.
The core of its Bitcoin strategy is long-term holding. Strategy has explicitly stated that it will not actively sell its held assets but will leverage Bitcoin's long-term appreciation potential to enhance the company's total assets and market value. Since the beginning of 2024, the company has continued to buy Bitcoin during significant price recoveries, especially accelerating purchases after it surpassed $60,000. In the first quarter of 2024 alone, the company increased its holdings by over 12,000 Bitcoins, bringing its total holdings to over 200,000 by early 2025, further reinforcing its "Bitcoin-centric" corporate image and closely linking its stock price to Bitcoin's movements, making it a highly watched alternative crypto asset vehicle in the capital markets.
3. Core Allegations
The core allegations in the complaint are that Strategy and its executives made several false and/or misleading statements or failed to adequately disclose key information, primarily including: (1) exaggerating the expected profitability of the company's investment strategy and capital operations related to Bitcoin; (2) failing to adequately disclose the risks associated with Bitcoin price volatility, especially after the adoption of the accounting standard update (ASU 2023-08), which could lead to significant losses recognized due to changes in the fair value of crypto assets; therefore, (3) the company's public statements were materially misleading at all key points in time.
Analysis shows that the core issues being alleged focus on two aspects: first, false or misleading statements regarding the profitability of its Bitcoin investment strategy; second, failure to timely disclose the significant impacts brought by the new accounting standards while downplaying related risks.
On one hand, the lawsuit claims that the company made false and misleading statements regarding the profitability of its Bitcoin investment strategy, violating federal securities laws. As a publicly traded company, Strategy has a responsibility to accurately reflect the actual contribution of Bitcoin investments to the company's profitability in its financial reports and public statements. However, the company is accused of exaggerating the positive financial effects of Bitcoin in multiple external communications, obscuring the fact that it truly relies on paper gains from rising coin prices rather than sustained profitability from its core business. Meanwhile, the company may have used adjusted non-GAAP metrics or positive language to embellish its profit outlook, masking the real financial pressures arising from crypto asset price volatility. Such behavior, if constituting false statements on significant matters, could violate Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5.
On the other hand, Strategy is also accused of failing to timely and adequately disclose its financial data in accordance with the revised ASU 2023-08 accounting standard. At the end of 2023, the Financial Accounting Standards Board (FASB) officially adopted new accounting treatment standards for crypto assets, allowing companies to measure Bitcoin and other crypto assets at fair value starting from the 2025 fiscal year (i.e., fiscal years beginning after December 15, 2024) and to reflect changes in fair value directly in the income statement, while also allowing early adoption of the standard.
The prosecution argues that, combining the aspects of false statements and insufficient disclosures, Strategy failed to fulfill its legal obligations as a publicly traded company regarding information disclosure during critical time windows, thereby misleading investors and causing actual economic losses.
4. Main Content of ASU 2023-08 Accounting Standard and Related Challenges
ASU 2023-08, issued by FASB in December 2023, marks a significant change in the accounting treatment of crypto assets under U.S. Generally Accepted Accounting Principles (GAAP). This standard applies to interchangeable crypto assets that meet specific conditions, requiring companies to measure them at fair value based on market prices for each reporting period and to include value changes in the current net profit, while separately disclosing relevant information in financial statements. The new regulation takes effect for fiscal years beginning after December 15, 2024, and allows for early adoption. The standard introduces more detailed disclosure requirements, including the types, quantities, fair values, restrictive information, and changes during the period of crypto assets, enhancing the transparency and consistency of financial reports. In short, ASU 2023-08 improves the quality of accounting information while also raising the compliance capabilities and risk management levels required of companies.
For crypto companies, adopting ASU 2023-08 as an accounting standard may have the following impacts: increased transparency of financial statements, simplified accounting processes, changes in tax and capital structure, and exposure to regulatory risks related to non-GAAP metrics. Strategy, which has Bitcoin investment as its core strategy, had not adopted fair value accounting methods prior to adopting ASU 2023-08 but instead used a cost impairment accounting model for its Bitcoin, classifying its substantial Bitcoin holdings as intangible assets. Under this accounting model, Strategy only needed to recognize impairment when prices fell; unless the asset was sold, it would not appreciate in value due to price increases. It was not until April 7, 2025, that the company disclosed in a filing with the SEC an unrealized loss of $5.91 billion due to the adoption of this standard, and subsequently explained in the quarterly earnings press release and conference call in May that the loss stemmed from valuation adjustments in the context of falling Bitcoin prices. As the prosecution argues, this delayed disclosure weakened investors' ability to assess the company's true financial condition and risk exposure during the class action period, constituting an omission of significant information.
5. Conclusion
Overall, the class action lawsuit faced by Strategy highlights the dual pressures that publicly traded companies face regarding information disclosure and compliance regulation in the context of the rapid development of crypto assets.
On one hand, as companies incorporate Bitcoin and other crypto assets into their financial structures, their profitability, asset volatility, and financing models are highly dependent on market conditions. Any external statements that do not adequately reflect the real risks may lead to legal risks of omissions or misleading statements.
On the other hand, as the new accounting standards passed by FASB at the end of 2023 are gradually implemented, companies must reflect crypto assets at fair value in their financial statements and proactively assess the systemic impacts on asset valuation, profit volatility, and disclosure obligations. Failure to timely and accurately explain the nature and scope of this accounting change on financial conditions may constitute a substantial misrepresentation of investor expectations.
Therefore, this case not only concerns the pursuit of individual liability but may also serve as a precedent for publicly traded companies in fulfilling disclosure obligations and balancing strategic promotion with compliance boundaries in the context of reforms in crypto asset accounting standards.
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