MicroStrategy CEO Michael Sailor has invested billions in Bitcoin. Can we trust him and the rapidly growing value of cryptocurrencies?
Times are tough, which means that, according to the twisted logic of American capitalism, stock markets and speculative investment are thriving. Bitcoin, the digital currency that has become mainstream of late, is at an all-time high.
Every bull market has its own whales, and as of late, the biggest whale for Bitcoin has been Michael Sailor, CEO of MicroStrategy, a Virginia-based enterprise software company.
Sailor, who controls most of his company’s voting shares, has poured over $ 2.2 billion of MicroStrategy funds into bitcoin. The company now refers to Bitcoin as its “primary reserve asset.” Sailor’s bold positioning (billing explicitly for buying bitcoins) and uncompromising attitude (he became a constant participant in conversations about cryptocurrency) made him a favorite of crypto enthusiasts and tech leaders inspired by his example.
This strategy proved to be more than good for Sailor, who claims to personally own nearly 18,000 BTC, and for MicroStrategy, which rose from roughly $ 92 in mid-March to nearly $ 1,035 in February 2021.
Sailor has done something unusual by transforming his unremarkable software company into a bitcoin-like investment vehicle that develops software.
Sailor described his company’s decision as a way to avoid inflation, taxes and fees and channel additional capital for more productive use. He says the company will hold Bitcoin for 100 years.
But whatever you think about Bitcoin, Michael Saylor’s own story is more complex and questions what we should expect from MicroStrategy.
MicroStrategy in 2000
In 1998, even before cryptocurrency was an idea, MicroStrategy went public.
When MicroStrategy went public, Michael Saylor had $ 200 million and the price was $ 20 per share. In just 10 weeks, the share price of MicroStrategy rose to $ 333, and at that time Michael Saylor had $ 14-15 billion, he was one of the richest people in the United States, he could buy Microsoft, Apple and Amazon if he wanted.
At the end of the fiscal year, in March 2000, MicroStrategy reported that the financial statements for 1998-1999 contained some accounting deviations and needed adjustments. Instead of the previously reported inflated profits, they now suffered rather large losses. As a result, the unprofitable, publicly traded corporation looked profitable.
In 2000, Sailor, two other MicroStrategy executives and the company itself paid a total of $ 11 million in a dispute with the Securities and Exchange Commission (SEC); Sailor, who personally signed the fraudulent income statements, paid $ 8.2 million of them. The charges were settled and no one pleaded guilty. Somehow, Sailor has kept his role in MicroStrategy for the past 20 years, reportedly becoming one of the richest people in the region. Since 2014, the company’s revenue has been declining annually.
What really happened?
On 5/10/1999, MicroStrategy struck a deal with NCR Corporation, which caught the attention of the CFRA as it was an unusual revenue-generating deal with a $ 52 + million licensing agreement paid by MicroStrategy and a large number of products they bought from NCR. This is called the “boomerang technique” in accounting, where virtually no one spends money, but both make a profit. Sounds pretty?
Because it is. Looks good on paper when shown to investors, but nothing more. No real profit. Nasdaq reacted and MTSR shares fell 10%, but Merrill Lynch (yes, the same Merrill Lynch that was bought by Bank of America the same week that Lehman Brothers went bankrupt in 2009) complained to the CFRA about unfair complaints, forcing MTSR shares a little rise.
Then, in January 2000, the CFRA warned everyone for the second time when the MTSR share price closed at $ 100, as they brought in a new partner (Exchange Application Inc) and the financial data was very similar to those previously associated with NCR. To make matters worse, the press release and contract were dated January 6, 2000, while the previous year’s revenue was recorded on 12.1999.
Finally, in March 2001, the SEC came into play and requested financial statements. Here is the full SEC report related to Microstrategy.
If you look at the SEC report, you can see that the actors are MicroStrategy, NCR, Exchange Application Inc, Merrill Lynch (now Bank of America). So the next time you hear about bad bankers who need to be replaced with cryptocurrencies and a decentralized economy, don’t take it personally.
They are all at the same time. Bankers are not going anywhere. Most likely, they will buy out most of the Bitcoin emission, earn billions, and you will live the same way as now.
MicroStrategy in 2021
In January 2021 MicroStrategy transferred 50,000 Class A shares to Alcantara LLC, of which Sailor is the sole owner. Many executives use stock options through private equity firms – and Sailor reportedly controls another company called Aeromar Management Co. LLC – but there is something weird about this step.
Alcantara has not received either MicroStrategy shares or any other securities since March 2012, according to SEC filings.