1. Overview of the Event

In early July 2025, the law firm Pomerantz filed a class action lawsuit against Strategy (formerly MicroStrategy, NASDAQ: MSTR) in the U.S. 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. This lawsuit, based on Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and its implementing regulations, SEC Rule 10b-5, seeks legal liability for alleged securities fraud by Strategy and certain of its senior executives regarding Bitcoin investment profit data and accounting standards, and seeks to recover resulting investment losses. As crypto assets increasingly become a crucial component of corporate strategic asset allocation, this lawsuit may serve as an important signal for regulators and market participants to re-examine crypto asset accounting and disclosure standards.

2. Strategy's Bitcoin Strategy

The renowned Strategy originally focused on enterprise-level business intelligence (BI), cloud-based services, and data analytics, providing data visualization, reporting, and decision support tools to large corporate clients. While its traditional software business enjoyed considerable industry recognition, growth had been slow, with relatively stable revenue and profit performance.

Since 2020, under the leadership of founder Michael Saylor, the company has formally established an asset allocation strategy centered around Bitcoin, positioning it as a primary reserve asset to replace cash. This shift marked the beginning of Strategy's significant investment in the Bitcoin market, with continued increases in holdings through multiple rounds of financing. The company not only used its own funds to purchase Bitcoin, but also secured low-cost funding through the issuance of convertible bonds, senior notes, and Bitcoin-backed loans, thereby amplifying its investment scale. Since then, Strategy has transformed itself into a leveraged Bitcoin finance company, rather than a simple enterprise software company.

The core of Strategy's Bitcoin strategy is long-term holding. Strategy has explicitly stated that it will not actively sell its holdings, but rather leverage Bitcoin's long-term appreciation potential to increase the company's total assets and market capitalization. Since 2024, the company has continued to purchase Bitcoin during its sharp price rebound, particularly accelerating its purchases after it broke through $60,000. In the first quarter of 2024 alone, the company increased its holdings by over 12,000 Bitcoins, bringing its cumulative holdings to over 200,000 by the beginning of 2025. This further reinforced its "Bitcoin-centric" corporate image and led to its stock price being highly correlated with Bitcoin's performance, making it a highly sought-after alternative crypto asset in the capital market.

Compliance Boundaries in Enterprise Crypto Asset Allocation: Examining Accounting Disclosure Risks from the Strategy Class Action Lawsuit

3. Core aspects of the allegations

The core allegations of the complaint are that Strategy and its executives issued several false and/or misleading statements or failed to fully disclose key information, including: (1) exaggerating the expected profitability of the company's investment strategy and fund operations around Bitcoin; (2) failing to fully disclose the risks associated with Bitcoin price fluctuations, especially the significant losses that the company may recognize due to changes in the fair value of crypto assets after adopting the accounting standards update (ASU2023-08); and (3) the relevant statements made by the company in public were materially misleading at all material times.

Analytically, the core issues of the allegations focus on two aspects: one is the false or misleading statements about the profitability of its Bitcoin investment strategy, and the other is the failure to disclose the significant impact of the new accounting standards in a timely manner and downplay the related risks.

On the one hand, the lawsuit alleges that the company made false and misleading statements about the profitability of its Bitcoin investment strategy, violating federal securities laws. As a publicly listed company, Strategy has a responsibility to truthfully reflect the actual contribution of Bitcoin investment to the company's profits in its financial reports and public statements. However, the company has been accused of exaggerating the positive financial impact of Bitcoin in various external communications, obscuring the fact that its true reliance was on paper profits from rising cryptocurrency prices rather than the sustained profitability of its core business. Furthermore, the company may have used adjusted non-GAAP metrics or positive language to inflate its earnings outlook, masking the real financial pressures brought on by crypto asset price fluctuations. Such conduct, if constituting a misrepresentation of a material matter, could constitute a violation of Section 10(b) of the Securities Exchange Act of 1934 and its implementing regulations, SEC Rule 10b-5.

Furthermore, Strategy was accused of failing to timely and fully disclose its financial data in accordance with the revised accounting standards set forth in ASU 2023-08. At the end of 2023, the U.S. Financial Accounting Standards Board (FASB) officially adopted new accounting standards for crypto assets, allowing companies to measure crypto assets such as Bitcoin at fair value and reflect changes in fair value directly in the income statement starting in fiscal year 2025 (i.e., fiscal years beginning after December 15, 2024). Companies are also permitted to adopt the standard early.

The plaintiffs argue that, through a combination of false statements and insufficient disclosure, Strategy failed to fulfill its legal disclosure obligations as a public company during a critical timeframe, thereby misleading investors and causing actual economic losses.

4. Key Contents and Related Challenges of ASU 2023-08

Issued by the FASB in December 2023, ASU 2023-08 marks a significant change in the accounting treatment of crypto assets under US GAAP. This standard applies to fungible crypto assets that meet certain criteria and requires companies to measure them at fair value based on market prices in each reporting period, recognizing changes in value in net income, and presenting the relevant information separately in their financial statements. The new regulations are effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The standard introduces more detailed disclosure requirements, including the type, volume, fair value, restrictive information, and period-to-period changes in crypto assets, enhancing the transparency and consistency of financial reporting. In short, while ASU 2023-08 improves the quality of accounting information, it also places higher demands on companies' compliance capabilities and risk management.

Previously, FinTax published a dedicated article analyzing ASU 2023-08. For crypto companies, adopting ASU 2023-08 as an accounting standard may have the following impacts: increased financial statement transparency, simplified accounting processes, changes in tax and capital structures, and exposure to regulatory risks related to non-GAAP indicators. Strategy, whose core strategy is Bitcoin investment, did not use fair value accounting before adopting ASU 2023-08. Instead, it accounted for its Bitcoin holdings using a cost impairment model, classifying its large Bitcoin holdings as intangible assets. Under this accounting model, Strategy only recognizes impairment losses when the price declines; unless the asset is sold, it does not receive a markup due to price increases. It wasn't until April 7, 2025, that the company disclosed in its SEC filing the $5.91 billion in unrealized losses it recognized as a result of adopting the standard. The company then explained in its quarterly earnings press release and conference call in May that the losses stemmed from valuation adjustments due to the decline in Bitcoin prices. As the plaintiffs argue, this delayed disclosure impaired 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 class action lawsuit against Strategy highlights the dual pressures facing public companies regarding information disclosure and regulatory compliance amid the rapid development of crypto assets.
On the one hand, as companies incorporate crypto assets like Bitcoin into their financial structures, their profitability, asset volatility, and financing models become highly dependent on market conditions. Any public statements that fail to fully reflect the true risks can easily lead to legal risks of omissions or misleading statements.

On the other hand, with the gradual implementation of the new accounting standards approved by the FASB at the end of 2023, companies must reflect crypto assets at fair value in their financial statements and proactively assess their systemic impact on asset valuations, profit volatility, and disclosure obligations. Failure to promptly and accurately explain the nature and scope of the impact of this accounting change on financial performance could materially mislead investor expectations.

Therefore, this case not only concerns the accountability of individual cases but also may be an example of how listed companies must fulfill their disclosure obligations and balance strategic communication with regulatory compliance in the context of crypto asset accounting reform.

Strategy: Unrealized losses on digital assets in the first quarter were $5.91 billion, and the Bitcoin strategy exposed the company to multiple risks

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