DC AG’s MicroStrategy Chair Michael Saylor accused of tax evasion

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 claims the company was conspiring to help Saylor evade taxes. The AG’s office said it is trying to recover a total of over $100 million in unpaid taxes and penalties.

MicroStrategy shares fell more than 6% on the news Wednesday afternoon. Saylor, who oversaw the company’s foray into Bitcoin, resigned as CEO earlier this month. Under his leadership, MicroStrategy spent almost $4 billion acquiring bitcoin at an average price of $30,700, and he said he views the company’s stock as a bitcoin ETF of sorts.

Saylor allegedly claimed to live in Virginia or Florida, which have lower or no personal income tax rates, when in fact he lived in several different homes around DC, including a penthouse in the Georgetown neighborhood or on his yacht on the coast from Georgetown or on the Potomac River if the condo was renovated according to the lawsuit. The lawsuit includes multiple screenshots of posts appearing to be from Saylor’s Facebook page, dating back several years, relating to the view from his “Georgetown balcony” and talking about his “home” while tagging Washington, DC

MicroStrategy Chairman and Chief Executive Officer Michael Saylor first came into contact with Bitcoin in 2020 when he decided to add the cryptocurrency to MicroStrategy’s balance sheet as part of an unorthodox treasury management strategy.

Eva Marie Uzcategui | Bloomberg | Getty Images

According to a press release, MicroStrategy reportedly had “detailed information confirming that Saylor actually lived in DC,” but chose to withhold that information.

In a statement, MicroStrategy said, “The case is a personal tax matter involving Mr. Saylor. The company was not responsible for its day-to-day affairs and did not monitor its individual tax obligations. Saylor in the fulfillment of his personal tax obligations. The District of Columbia’s allegations against the company are false and we will defend ourselves aggressively against this overstatement.”

Around 2014, the AG’s office alleges in the lawsuit, MicroStrategy’s then-CFO confronted Saylor about his alleged tax evasion as a potential liability for the company. Saylor and MicroStrategy eventually reached an agreement whereby Saylor’s salary would be reduced to a nominal $1, according to the lawsuit, to reduce the risk that authorities would uncover the alleged scheme. Still, the AG claims Saylor continued to benefit from “fringe benefits” with a “high cash value,” such as use of the company’s plane.

“A decade ago, I bought a historic home in Miami Beach and moved my home there from Virginia,” Saylor said in a statement. “Although MicroStrategy is based in Virginia, Fla., I live, vote and reported for jury duty, and it is central to my personal and family life. I respectfully disagree with the District of Columbia’s position and look forward to a fair resolution in court.”

According to Racine’s office, the lawsuit is the first to be brought under a recently passed law called the False Claims Act. The county law gives whistleblowers incentives to report tax evasion and allows the court to impose penalties of up to three times the amount of tax evaded, according to the AG office.

The district lawsuit follows a separate whistleblower complaint against Saylor in April 2021, alleging that he failed to pay income taxes from 2014 to 2020. The complaint was filed under wraps but was released on Wednesday.

The AG’s office said it independently investigated the whistleblower case and found that MicroStrategy filed false W-2 forms with its Florida resident address and failed to withhold taxes allegedly owed to the county. The new lawsuit alleges that Saylor failed to pay income taxes that he owed the district beginning in 2005.

— 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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