A Crypto Bull’s Big Tax Settlement

A Crypto Bull’s Big Tax Settlement

June 3, 2024 / Kim browne /


The attorney general for the District of Columbia has reached a $40 million settlement with the billionaire Bitcoin investor Michael Saylor and MicroStrategy, the software company he founded, over tax fraud, DealBook’s Lauren Hirsch is first to report.

Officials say the agreement is the biggest-ever income tax fraud recovery in the district. It’s also the first lawsuit under the district’s amended False Claims Act, which encourages whistle-blowers to file claims of tax evasion against residents who they say are concealing where they actually live.

The lawsuit accused Saylor of evading more than $25 million in income taxes. The attorney general sued the tech executive and MicroStrategy in 2022, saying he enlisted the company’s help to file fraudulent tax forms from 2005 through 2020.

The lawsuit said Saylor and the company claimed that he lived in Virginia or Florida, states with significantly lower income tax rates.

The attorney general said MicroStrategy was aware of where Saylor spent his time, as the company provided him with a security detail and drivers. “Michael Saylor and his company, MicroStrategy, defrauded the district and all of its residents for years,” said Brian L. Schwalb, the attorney general, in a statement.

Details referenced in the lawsuit to show Saylor resided in Washington included:

  • Luxury properties: Saylor bought three condominiums in Georgetown between 2006 and 2008 and spent millions on renovations.

  • Yacht moorings: During renovations, he spent time on one of his yachts anchored in the Potomac River and another penthouse apartment.

  • Social media posts: “View from my Georgetown balcony this morning. Now I just need to finish renovating the apartment so I can move back in,” Saylor wrote in one post.

MicroStrategy and Saylor deny any wrongdoing. “Florida remains my home today, and I continue to dispute the allegation that I was ever a resident of the District of Columbia,” Saylor told DealBook. “I have agreed to settle this matter to avoid the continued burdens of the litigation on friends, family, and myself.”

Saylor founded MicroStrategy as a data analytics company in 1989. It has subsequently become the one of the largest corporate buyers of Bitcoin. The price of the cryptocurrency is soaring, sending shares in MicroStrategy up 122 percent this year and giving the company a market value of $27 billion.

Saylor stepped down as C.E.O. in 2022 but remains executive chairman, and has a net worth of $4.6 billion, according to Forbes.

The False Claims Act was amended in 2021 to allow lawsuits like this. A whistle-blower filed a lawsuit against Saylor that year, and the district followed up with its own case a year later. A whistle-blower who files a successful claim is eligible for up to 25 percent of what the government recovers.

OPEC Plus will continue to cut oil production. The cartel said that it would put out limited supplies of petroleum through the end of next year in an effort to prop up global oil prices. (The announcement came as Saudi Arabia said it had sold more shares in Aramco, its state-owned oil giant.) But the group also laid out steps for gradually increasing production starting this fall.

Nvidia announces new artificial intelligence chips. The semiconductor giant at the heart of the A.I. boom unveiled its next generation of processors, just months after announcing a previous model. Nvidia is trying to maintain its lead in the market for A.I. chips as other companies seek to roll out rival products. (Its chief, Jensen Huang, also cited “C.E.O. math” in encouraging companies to stock up on its products.)

Indian stocks set records as exit polls show Narendra Modi is likely to keep power. Key indexes including the Nifty 50 leaped on the news that the alliance led by India’s prime minister appears to have secured an overwhelming majority in the country’s general election. Official results are due tomorrow. Investors appear to believe that a Modi victory will spur economic growth and further pro-business policies.

Here’s what to watch this week. The European Central Bank may begin cutting interest rates when it announces its next move on Thursday. The latest U.S. jobs report is scheduled for release on Friday, providing more clues on when the Fed may follow suit. Earnings reports include Inditex, the owner of Zara, and Lululemon Athletica, both reporting on Wednesday.

It’s happening again.

Shares in GameStop were up as much as 103 percent in premarket trading on Monday after the Reddit account associated with Keith Gill, the trader who helped spur 2021’s meme-stock mania, appeared to show a $116 million stake in the video game retailer. (Shares in AMC, another meme-stock favorite, were up 25 percent.)

But the second rally in GameStop’s stock in as many months raises a question: Is Gill really behind the posts?

Monday’s trading surge was driven by a single screenshot uploaded to Reddit on Sunday. It showed what’s seemingly a stake of five million shares in GameStop, bought for $21.27 each, as well as 120,000 call options with a $20 strike price that were bought for $5.67 apiece. The market data provider Unusual Whales posted that there had been a spike in trading for those options.

Adding fuel to the rally was a post to @TheRoaringKitty, the X account associated with Gill, that featured an image of a reverse card from Uno, the card game. Followers largely interpreted the picture — which was in line with the cryptic memes that punctuated Gill’s social media posting in 2021 — as a rallying cry to bolster GameStop’s stock price, which has fallen after a brief Roaring Kitty-inspired spike last month. (GameStop profited from that rally by selling new shares, raising $933 million.)

The new posts continue a flurry of activity from Gill’s accounts, which had lain dormant since 2021. @TheRoaringKitty resumed posting on X on May 13, starting with another cryptic meme largely interpreted as a pro-GameStop call.

Gill’s Reddit account hadn’t posted anything in three years until Sunday.

But is it really Gill behind the posts? Online sleuths have been debating this since last month, with some speculating that the trader had sold his X account to a conceptual artist with a history of trolling.

Worth noting: While Gill’s Reddit account has shown signs of life, his YouTube channel — where he regularly posted videos of himself talking up his stock recommendations — remains inactive.

Paramount will hold its annual meeting tomorrow with negotiations over a merger or a sale of Shari Redstone’s media company looming large.

But a new sticking point has emerged over Redstone’s efforts to seal a deal with Skydance, the film studio founded by David Ellison, write DealBook’s Lauren Hirsch and The Times’s Ben Mullin: If Paramount’s other investors sue over the merger, who will have to defend it in court?

Here’s a recap of the proposed Skydance-Paramount deal. Skydance wants to buy Redstone’s stake in National Amusements, the holding company of Paramount that owns her voting stock, and then merge with Paramount itself.

But that’s left some Paramount investors worried that the deal is designed to benefit Redstone at their expense.

Skydance has sweetened its offer in an effort to win over critics. Skydance recently agreed to add at least $1.5 billion to pay down Paramount’s debt.

The two companies have also agreed to buy a number of other investors’ shares at $15 each, or allow them to roll their stake into the new entity, according to The Wall Street Journal. The tender offer would represent a 26 percent premium on the stock’s closing price on Friday.

National Amusements is seeking indemnification. The company wants Skydance to provide legal protection if shareholders go to court over the merger, according to three people familiar with the matter.

Such protections are typical in private equity deals, and Redstone may claim she deserves indemnification because she is not in complete control of the sales process, lawyers told DealBook. Skydance hasn’t agreed to the condition.

But Skydance still seems to be ahead in the fight for Paramount. A rival offer by Sony and Apollo, the private equity giant, seems less likely to succeed after they backed away from their initial $26 billion all-cash offer.

Next week is likely to be a pivotal moment for Tesla: On June 13, its shareholders are set to vote on whether to again approve a $56 billion pay package for Elon Musk, after a Delaware judge voided it in January.

A recent survey by Morgan Stanley analysts found an overwhelming belief that Musk’s compensation will be approved. But the composition of Tesla’s investor base still makes that far from a done deal.

About 57 percent of respondents said the plan would pass, versus 23 percent who said it was likely to fail. (The 109 responses came from subscribers to the Morgan Stanley analysts’ reports.)

But there’s some uncertainty about getting to that point. Tesla’s investor base has significantly more retail shareholders than the average big corporation, with individual investors holding about 44 percent of its shares, according to S&P Global Market Intelligence.

That has given unusually significant prominence to social media influencers like Alexandra Merz, who, as @TeslaBoomerMama on Musk’s X social network, has repeatedly called on fellow investors to vote and shared instructions on how to do so. (Retail shareholders typically don’t vote in corporate elections.)

Individual investors’ votes could prove important, given that some institutions like the giant California public pension fund Calpers have said they will vote against Musk’s pay plan. Others, including the asset management giant T. Rowe Price, have suggested they will vote to approve it.

One wrinkle, according to The Financial Times: Investors outside the U.S. haven’t been able to vote because of technical issues.

There’s a lot at stake for investors, many of whom are worried about what Musk would do if he doesn’t win. He has suggested that he might refocus his work on artificial intelligence at his other companies, potentially depriving the electric carmaker of vital innovations.

Sixty-eight percent of respondents to the Morgan Stanley survey said they expected Tesla’s stock to climb if the plan is approved.

Perhaps more strikingly, 81 percent of respondents believed that Tesla’s stock would fall if the package is rejected, with 54 percent expecting it to drop at least 6 percent.

Deals

Policy

  • Donald Trump has joined TikTok, after decrying efforts in Washington to force the video platform’s divestment from its Chinese parent — a reversal of his earlier policies. (Politico)

  • About 40 percent of respondents to a new poll said the Fed would lose its political independence if Trump is re-elected. (Bloomberg)

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Kim browne

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