MicroStrategy Faces Lawsuit Again: How Do Accounting Standards Cause Big Trouble?

1. Event Overview

In early July 2025, the law firm Pomerantz filed a class action lawsuit against Strategy (formerly known as MicroStrategy, Nasdaq ticker: MSTR) in the Federal 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, based on Section 10b of the Securities Exchange Act of 1934 and SEC Rule 10b-5, seeks to hold Strategy and some of its senior executives legally accountable for alleged securities fraud related to misleading data on Bitcoin investment profits and accounting standards, and to recover investment losses incurred as a result. As crypto assets increasingly become a critical component of corporate strategic asset allocation, this lawsuit could serve as an important signal for regulators and market participants to reassess accounting and information disclosure standards for crypto assets.

2. Strategy's Bitcoin Strategy

The renowned Strategy was originally 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 for large enterprise clients over the long term. Although its traditional software business has a certain level of recognition in the industry, growth has been slow, and revenue and profit performance have been relatively stable.

Since 2020, under the leadership of founder Michael Saylor, the company has officially established an asset allocation strategy centered around Bitcoin, positioning it as a primary reserve asset to replace cash. This transformation marks the beginning of Strategy's significant investment in the Bitcoin market, continuously increasing its holdings through multiple rounds of financing. The company not only uses its own funds to purchase Bitcoin but also secures low-cost capital by issuing convertible bonds, preferred notes, and loans secured by Bitcoin, thereby amplifying its investment scale. Subsequently, Strategy has transformed into a leveraged Bitcoin financial company rather than just a simple enterprise software company.

The core of its Bitcoin strategy lies in long-term holding. The strategy clearly states that it will not actively sell its held assets, but rather leverage the long-term appreciation potential of Bitcoin to enhance the company's total assets and market value. Since the beginning of 2024, the company has been continuously buying during the substantial rebound in Bitcoin prices, especially accelerating its purchasing pace after it broke through $60,000. In just the first quarter of 2024, the company increased its holdings by over 12,000 Bitcoins, bringing its cumulative holdings to over 200,000 by early 2025. This further reinforces its corporate image as "Bitcoin-based," and links its stock price closely to Bitcoin's movements, making it a highly watched alternative crypto asset in the capital markets.

3. Core Aspects of the Allegations

The core accusation in the complaint is that Strategy and its executives made several false and/or misleading statements, or failed to adequately disclose key information, primarily including: (1) exaggeration of the expected profitability that the company's investment strategy and funding operations around Bitcoin could bring; (2) failure to adequately reveal the relevant risks posed by Bitcoin price fluctuations, especially after the adoption of the Accounting Standards Update (ASU2023-08), which may lead to significant losses recognized by the company due to changes in the fair value of crypto assets; therefore, (3) the relevant statements made by the company in public settings were significantly misleading at all critical points in time.

Analysis shows that the core issues being accused focus on two aspects: first, false or misleading statements regarding the profitability of its Bitcoin investment strategy; second, the failure to timely disclose the significant impact brought by the new accounting standards and downplaying the associated risks.

On one hand, the lawsuit alleges that the company made false and misleading statements regarding the profitability of its Bitcoin investment strategy, in violation of federal securities laws. As a publicly traded company, Strategy is obligated to accurately reflect the actual contribution of Bitcoin investments to the company's profits in its financial reports and public statements. However, the company is accused of exaggerating the financial positive effects brought by Bitcoin in multiple external communications, obscuring the fact that it truly relies on the paper gains from the rising coin prices rather than the ongoing profitability of its core business. Meanwhile, the company may have used adjusted non-GAAP metrics or positive language to embellish its profit outlook, hiding the real financial pressures brought by the volatility of crypto asset prices. If such behavior constitutes false statements about significant matters, it may violate the provisions of Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5.

On the other hand, Strategy has also been criticized for failing to disclose the company's financial data in a timely and adequate manner in accordance with the ASU2023-08 accounting standard revisions. At the end of 2023, the Financial Accounting Standards Board (FASB) officially passed a new accounting treatment standard for crypto assets, which allows enterprises to measure cryptocurrencies such as Bitcoin at fair value starting from the fiscal year 2025 (i.e., fiscal years beginning after December 15, 2024), and reflect the changes in fair value directly in the income statement. It also allows enterprises to adopt this standard early.

The prosecution believes that, in light of both false statements and insufficient disclosures, Strategy is accused of failing to fulfill its legal obligations for information disclosure as a publicly listed company during a critical time window, thereby misleading investors and causing actual economic losses.

4. Main Contents of ASU 2023-08 Accounting Standards and Related Challenges

ASU 2023-08, issued by the FASB in December 2023, marks a significant change in the accounting treatment of cryptocurrency assets under U.S. Generally Accepted Accounting Principles (GAAP). This standard applies to interchangeable cryptocurrency assets that meet specific conditions, requiring companies to measure them at fair value based on market prices at each reporting period and recognize the changes in value in the current period's net income, while separately disclosing relevant information in the financial statements. The new rules will take effect for fiscal years beginning after December 15, 2024, and allow for early adoption. The standard introduces more detailed disclosure requirements, including types, quantities, fair value, restrictions, and changes during the period of cryptocurrency assets, enhancing the transparency and consistency of financial reports. In short, ASU 2023-08 not only improves the quality of accounting information but also raises higher demands on companies' compliance capabilities and risk management levels.

For cryptocurrency 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 associated with non-GAAP metrics. The Strategy, which centers its core strategy around Bitcoin investments, did not adopt fair value accounting methods prior to the adoption of ASU 2023-08, but instead used a cost impairment accounting model to account for its Bitcoin holdings, classifying a large amount of Bitcoin as intangible assets. Under this accounting model, the Strategy only needs to recognize impairment when prices fall, and will not increase the value due to price rises unless the assets are sold. It was not until April 7, 2025, that the company disclosed in a filing to the SEC an unrealized loss of $5.91 billion resulting from the adoption of this standard, and subsequently explained in the quarterly earnings press release and conference call in May that the losses stemmed from valuation adjustments in the context of falling Bitcoin prices. As the prosecution believes, this delayed disclosure undermined investors' ability to assess the company's true financial condition and risk exposure during the class action period, constituting an omission of material information.

5. Conclusion

Overall, the collective lawsuit faced by Strategy highlights the dual pressure that listed companies face in terms of information disclosure and compliance regulation against the backdrop of the rapid development of crypto assets.

On one hand, as companies incorporate cryptocurrencies like Bitcoin into their financial structures, their profitability, asset volatility, and financing models are highly dependent on market conditions. Any external statements that do not fully reflect the real risks may easily trigger 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 cryptocurrency assets at fair value in their financial statements and assess in advance the systemic impact on asset valuation, profit fluctuations, and disclosure obligations. Failure to timely and accurately explain the nature and scope of this accounting change on financial condition may constitute a substantial misrepresentation of investor expectations.

Therefore, this case not only concerns the pursuit of individual case responsibility but may also serve as an example of how listed companies fulfill disclosure obligations and balance strategic promotion with compliance boundaries against the backdrop of reform in accounting standards for crypto assets.