1. Case Overview

In early July 2025, Pomerantz LLP filed a class action lawsuit in the U.S. District Court for the Eastern District of Virginia on behalf of all individuals and entities who purchased or otherwise acquired securities of Strategy (MicroStrategy, NASDAQ: MSTR) between April 30, 2024, and April 4, 2025. The lawsuit, based on Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, seeks to hold Strategy and certain senior executives legally accountable for alleged securities fraud related to bitcoin investment profit disclosures and accounting standards, and to recover investment losses. As crypto assets increasingly become a core part of corporate asset allocation strategies, this lawsuit may serve as a key signal for regulators and market participants to re-evaluate accounting and disclosure standards related to crypto assets.

2. Strategy’s Approach to Bitcoin

Well-known in its earlier days, Strategy was originally an enterprise software company focused on business intelligence (BI), cloud-based services, and data analytics. It provided data visualization, report generation, and decision support tools to large corporate clients. While its traditional software business was fairly well-regarded in the industry, its growth had slowed, and its revenue and profits remained relatively stable.

Since 2020, under the leadership of founder Michael Saylor, the company officially adopted a bitcoin-centric asset allocation strategy, positioning it as the primary reserve asset in place of cash. This transformation marked the beginning of large-scale bitcoin purchases by Strategy, funded through multiple rounds of financing. The company not only used its own funds to buy bitcoin but also raised low-cost capital through issuing convertible bonds, preferred notes, and bitcoin-backed loans to amplify its investments. As a result, Strategy transitioned from a conventional enterprise software firm into a leveraged bitcoin financial company.

The core of Strategy’s bitcoin approach lies in long-term holding. The company explicitly stated that it would not actively sell its holdings, instead aiming to boost its total assets and market value through bitcoin’s long-term appreciation. Since early 2024, it continued buying bitcoin as prices rebounded significantly—especially accelerating purchases once the price surpassed $60,000. In Q1 2024 alone, Strategy acquired over 12,000 more bitcoins, pushing its total holdings to over 200,000 by early 2025. This further solidified its image as a "bitcoin-first" enterprise and tightly linked its stock price to bitcoin’s market performance, making it a prominent and alternative crypto asset vehicle in the capital markets.

3. Core Allegations

The core allegations in the complaint state that Strategy and its executives issued several false and/or misleading statements or failed to disclose key information, including: (1) exaggerating the expected profitability of its bitcoin investment strategy and funding operations; (2) failing to adequately reveal the risks associated with bitcoin’s price volatility, particularly under the new accounting standard update (ASU 2023-08), which could result in major losses due to fair value changes in crypto assets; and thus, (3) making materially misleading public statements during all key time periods.

Analyzing the case, the main issues fall into two categories: first, false or misleading statements about the profitability of its bitcoin investment strategy; second, the failure to disclose the major impact of the new accounting standard in a timely manner, while downplaying related risks.

On one hand, the lawsuit claims the company violated federal securities laws by making false and misleading claims about its bitcoin investment returns. As a publicly traded company, Strategy is obligated to accurately reflect bitcoin’s contribution to profitability in its financial reports and public communications. However, the company allegedly overstated the financial upside of bitcoin in various external statements, obscuring the fact that its profits largely stemmed from unrealized paper gains due to rising bitcoin prices—rather than sustained core business earnings. It may also have used adjusted non-GAAP metrics or positive spin to paint a more favorable outlook, masking the real financial strain caused by crypto market volatility. If these actions amounted to material misstatements, they could violate Section 10(b) and Rule 10b-5 under the Securities Exchange Act of 1934.

On the other hand, Strategy was also accused of failing to timely and adequately disclose the financial impact of adopting ASU 2023-08. In late 2023, the Financial Accounting Standards Board (FASB) issued new crypto asset accounting rules, effective for fiscal years starting after December 15, 2024, allowing companies to measure assets like bitcoin at fair value and reflect changes directly in the income statement. Early adoption was also permitted.

Prosecutors argue that the combination of false statements and insufficient disclosures means Strategy failed to meet its legal obligations as a public company during critical time windows—misleading investors and causing real economic harm.

4. ASU 2023-08: Key Provisions and Challenges

ASU 2023-08, issued by the FASB in December 2023, marked a major shift in how crypto assets are treated under U.S. Generally Accepted Accounting Principles (GAAP). The new standard applies to certain interchangeable crypto assets that meet specific criteria, requiring companies to measure them at fair value based on market prices at each reporting period. Changes in value must be recognized in current net income, and related details must be presented separately in financial statements. The standard becomes effective for fiscal years starting after December 15, 2024, though early adoption is permitted. It also introduces more detailed disclosure requirements—such as the types, quantities, and fair values of crypto assets, any restrictions, and changes during the reporting period, improving both the transparency and consistency of financial reports. In short, while ASU 2023-08 improves the quality of accounting information, it also raises the bar for companies’ compliance capabilities and risk management standards.

FinTax previously published a detailed analysis of ASU 2023-08. For crypto-native companies, adopting this standard could bring several consequences: increased transparency in financial statements, simplified accounting procedures, impacts on tax treatment and capital structure, and added regulatory scrutiny around non-GAAP metrics. Before adopting ASU 2023-08, Strategy—whose core strategy revolves around bitcoin investments—had not used fair value accounting. Instead, it accounted for its bitcoin holdings under a cost-less-impairment model, classifying them as intangible assets. Under this approach, the company was only required to recognize impairment losses when prices fell, and gains from price increases were not recorded unless the assets were sold. It wasn’t until April 7, 2025, that Strategy disclosed in a filing to the SEC that it had recorded $5.91 billion in unrealized losses as a result of adopting the new standard. In its earnings press release and conference call the following May, the company explained that the losses stemmed from valuation adjustments triggered by a drop in bitcoin prices. As the plaintiffs argue, this delayed disclosure weakened investors’ ability to accurately assess the company’s real financial health and risk exposure during the class period amounting to a material omission.

5. Conclusion

In summary, this class action lawsuit against Strategy highlights the twin pressures public crypto companies face: disclosure and compliance.

On one hand, as companies integrate bitcoin and other crypto assets into their balance sheets, their profitability, asset volatility, and financing models become heavily market-driven. Any public statements that fail to fully capture these risks may invite legal trouble for omissions or misleading claims.

On the other hand, with the phased implementation of new accounting standards by FASB since late 2023, companies must now reflect crypto holdings at fair value in their financials and assess systemic impacts on valuation, earnings volatility, and disclosure duties ahead of time. Failure to clearly and promptly communicate these changes may materially mislead investors.

Thus, this case is not only about legal responsibility for a single incident but may also become a benchmark for how listed companies navigate disclosure obligations and strategic storytelling under evolving crypto accounting rules.