MicroStrategy Chair Michael Saylor accused of tax evasion by DC AG

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DC AG sues MicroStrategy and founder Michael Saylor for tax fraud

District of Columbia Attorney General Karl Racine accused MicroStrategy co-founder and Executive Chairman Michael Saylor of evading $25 million in district taxes in a lawsuit filed Wednesday.

The lawsuit also names MicroStrategy as a defendant. Racine alleges the company conspired to help Saylor evade the taxes. The AG’s office said it’s seeking to recover a total sum of over $100 million in unpaid taxes and penalties.

Shares of MicroStrategy were down more than 6% Wednesday afternoon on the news. Saylor, who oversaw the company’s push into bitcoin, stepped down as CEO earlier this month. Under his leadership, MicroStrategy spent close to $4 billion acquiring bitcoin at an average price of $30,700, and he has said he considers the company’s stock a sort of bitcoin ETF.

Saylor allegedly claimed to reside in Virginia or Florida, which have lower or no personal income tax rates, while actually living in several different homes around D.C., including a penthouse apartment in the Georgetown neighborhood or on his yacht on the Georgetown waterfront or Potomac River when the apartment was undergoing renovations, according to the lawsuit. The suit includes several screenshots of posts that appear to be from Saylor’s Facebook page dating back several years and referencing the view from his “Georgetown balcony” and discussing his “home” while tagging Washington, D.C.

Michael Saylor, chairman and chief executive officer of MicroStrategy, first got into bitcoin in 2020, when he decided to start adding the cryptocurrency to MicroStrategy’s balance sheet as part of an unorthodox treasury management strategy.

Eva Marie Uzcategui | Bloomberg | Getty Images

MicroStrategy allegedly “had detailed information confirming that Saylor was in fact a DC resident,” according to a press release, but it chose to withhold that information.

Around 2014, the AG’s office claims in the lawsuit, MicroStrategy’s then-chief financial officer confronted Saylor about his alleged tax evasion being a potential liability for the company. Saylor and MicroStrategy ended up reaching an agreement where Saylor’s salary would be reduced to a nominal $1, the lawsuit claims, in order to reduce the risk authorities would discover the alleged scheme. Still, the AG alleges, Saylor continued to benefit from “fringe benefits” with a “high cash value,” such as use of the company plane.

The suit is the first to be brought under a recently passed law called the False Claims Act, according to Racine’s office. The district law incentivizes whistleblowers to report tax fraud and allows the court to impose penalties up to three times the amount of the evaded taxes, according to the AG’s office.

The district suit follows a separate complaint filed by whistleblowers against Saylor in April 2021, accusing him of failing to pay income taxes from 2014 through 2020. The complaint was filed under seal but made public on Wednesday.

The AG’s office said it independently investigated the whistleblower case and found MicroStrategy had filed inaccurate W-2s with his Florida-based address and had failed to withhold taxes allegedly owed to the district. The new lawsuit alleges Saylor failed to pay income tax he owed to the district starting in 2005.

MicroStrategy did not immediately respond to CNBC’s request for comment.

— MacKenzie Sigalos contributed to this story.

WATCH: Watch CNBC’s full interview with MicroStrategy CEO Michael Saylor at Bitcoin 2022

Watch CNBC's full interview with MicroStrategy CEO Michael Saylor at Bitcoin 2022

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