On Wednesday, the first lawsuit using a new whistleblower rule was unveiled, showing that Michael Saylor, the founder and executive chairman of software intelligence firm MicroStrategy (MSTR), is being sued by the District of Columbia’s attorney general for allegedly attempting avoid paying more than $25 million in taxes. The lawsuit, covered by the network’s TV news, raised concerns that MicroStrategy and/or Saylor could be forced to liquidate some of their bitcoin, putting downward pressure on the price of crypto.
“As MicroStrategy is one of the largest holders of Bitcoin, crypto investors have begun to panic about whether Michael Saylor should liquidate Bitcoin to pay the resulting fines,” wrote Marcus Sotiriou, an analyst at GlobalBlock, a cryptocurrency broker. digital assets, in a note.
Fears seem exaggerated, for now, for several reasons. But the action should remind crypto boosters that – while they may hold non-forfeitable assets – they must pay their taxes in full. Tax avoidance schemes are loopholes, but require significant planning and commitment. (CoinDesk released a comprehensive guide to crypto taxes earlier this year.)
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Additionally, now that the US government is both reporting increased interest in surveillance of the crypto industry and revamping the Internal Revenue Service, it’s reasonable to assume you’re being watched.
The lawsuit alleges Saylor perpetrated a scheme over the past decade to avoid taxes in Washington, DC, claiming he was a resident of Virginia and Florida, two low-tax jurisdictions. Investigators came to the opposite conclusion, after being tipped off, by following Saylor’s private jet flight records, social media posts, and unattributed conversations with Saylor’s peers in which he allegedly said the people were “fools” for paying their income taxes.
The court document does not provide the total amount that Saylor, if convicted, may have to pay. But he owed all unpaid taxes in Washington, D.C. for eight years, annual compound interest payments of 10%, a separate civil penalty of $11,000 for each violation and other fines for fraud. That could total more than $100 million, according to the attorney general’s office.
The fear that this action could somehow lead to a bitcoin (BTC) sell-off crisis is somewhat unfounded and tends to confuse the former CEO of MicroStrategy (he resigned last month) with his company. First, the government must win its case, which could involve unfair enforcement of the recently passed misrepresentation law, an expert quoted by The Wall Street Journal said.
It also assumes that Saylor could not cover a multi-million dollar liability, that he would liquidate his BTC rather than any of the mansions or yachts he owns, and also throw it in the market rather than sell it by slices to avoid skidding. The government must also prove that MicroStrategy was involved in Saylor’s scheme.
Apparently, in 2014, according to the attorney general, MicroStrategy’s chief financial officer was “uncomfortable with this scam” and confronted Saylor about the company’s potential liability for his personal tax evasion. In a response, MicroStrategy called the lawsuit Saylor’s “personal tax matter” and said he was not responsible for “his day-to-day business.”
Saylor also denied the claims and reiterated that he lives in Florida, not in a historic Georgetown mansion or on a yacht moored on the Potomac River, as claimed.
Fears, similar to rumors that upcoming payouts for Mt. Gox depositors will drive the price of bitcoin down, stem from MicroStrategy’s systemic importance in bitcoin. The company spent around $4 billion to acquire BTC, which transformed its shares into a true bitcoin exchange fund (ETF). But the company is still well capitalized and has been generating cash for years. The liquidation price of its bitcoin is around $3,000, company representatives said.
Is all of this out of the question for a former CEO who was convicted of accounting fraud? Who recommended people to sell their house to buy bitcoin? This leveraged his company’s bitcoin stock? I mean, let the courts, not social media, decide. In typical Saylor fashion, he apparently called the District of Columbia “the most powerful city in the world.” The man has a penchant for exaggeration.
The worst-case scenario is that bitcoin is under above-average selling pressure, but that seems unlikely given Saylor’s known commitment to the network. This fear, not really widespread, resembles the type of pessimism seen during bear markets – where investors are nervous and start to assume that another crisis is sure to occur.
One thing is certain, for all those who are not on the verge of megalomania, it is to… just pay their taxes. Or examine flag theory.