Bitcoin whale Michael Saylor accused of tax fraud

D.C. sues MicroStrategy exec chair, alleges $25M+ tax avoidance scheme

Published August 31, 2022 by Courtney Mabeus-Brown / Robyn Sidersky

Tysons-based MicroStrategy Inc. Executive Chairman Michael Saylor is being sued by the city of Washington, D.C., which accuses Saylor of engaging in a fraudulent scheme to deprive the city of more than $25 million in income taxes while living in “a luxury penthouse on the Georgetown waterfront” and claiming to be a resident of Virginia or Florida. 

The civil lawsuit, filed Aug. 22 by D.C. Attorney General Karl Racine in the District of Columbia Superior Court and unsealed Wednesday, also names MicroStrategy as a defendant, alleging that the company and its executives conspired with Saylor to avoid his obligations to pay city income taxes. Under the city’s new False Claims Act, Saylor, who ranks No. 1,818 on Fortune’s list of world billionaires with an estimated net worth of $1.6 billion, could be found personally liable for more than $75 million in unpaid taxes and penalties if the lawsuit is successful.

“A decade ago, I bought an historic house in Miami Beach and moved my home there from Virginia,” Saylor said in a written statement sent to Virginia Business. “Although MicroStrategy is based in Virginia, Florida is where I live, vote and have reported for jury duty, and it is at the center of my personal and family life. I respectfully disagree with the position of the District of Columbia, and look forward to a fair resolution in the courts.”

In August, Saylor stepped down as CEO of the publicly traded tech company he cofounded in 1989, taking on the position of executive chairman, while MicroStrategy President Phong Le was appointed CEO. The move followed MicroStrategy’s August earnings report, which tallied the company’s $1.98 billion impairment loss on its bitcoin holdings. Saylor has long been a vocal advocate of bitcoin, and the company is best known as the largest corporate holder of bitcoin, having invested nearly $4 billion in the cryptocurrency. 

Racine’s office alleges that Saylor avoided paying more than $25 million in taxes “by pretending to be a resident of other states with lower personal income taxes.” The attorney general is seeking to recover unpaid income taxes and penalties from both Saylor and MicroStrategy that could total more than $100 million, according to a release from Racine’s office.

According to the lawsuit, from 2005 to the present, Saylor has lived in “Trigate,” his 7,000-square-foot waterfront D.C. penthouse — where he’s docked “multiple yachts on the District’s Potomac riverfront” — but has claimed to be a Virginia resident. In 2012, according to the lawsuit, Saylor commenced a scheme to “fraudulently misrepresent” himself as a resident of Florida, where he bought a house in Miami Beach. He also obtained a driver’s license in the Sunshine State and registered to vote there.

At the same time, Saylor’s conduct — including voting three times in Florida elections using absentee ballots sent to Tysons or D.C., according to the lawsuit — showed that he didn’t intend to abandon the nation’s capital. 

During or around 2013, Saylor asked MicroStrategy to begin using his Florida address on Internal Revenue Service forms, the lawsuit alleges, instead of his actual home address in D.C. MicroStrategy was aware that Saylor actually lived in D.C., according to the suit, because the company provided him with a security detail and transportation services such as flights and personal drivers. 

About a year later, the company’s then-chief financial officer grew concerned about MicroStrategy’s involvement in the scheme, according to the lawsuit, and counted the days Saylor spent in the District, finding Saylor spent a majority of each year there. When confronted about the scheme to avoid paying D.C. taxes, and Saylor’s possible liability to the company, Saylor agreed to a reduction of salary to $1, but his compensation remained higher because of fringe benefits, including use of the company’s plane, the lawsuit says. 

MicroStrategy continued to report Saylor’s Florida address on his W-2s from 2014 through 2021, and failed to withhold D.C. income taxes. 

“This was no mere clerical error,” the lawsuit says, alleging that MicroStrategy conspired with Saylor. 

MicroStrategy responded to the allegations in a written statement, sent to Virginia Business.

“The case is a personal tax matter involving Mr. Saylor,”  the statement said. “The company was not responsible for his day-to-day affairs and did not oversee his individual tax responsibilities. Nor did the company conspire with Mr. Saylor in the discharge of his personal tax responsibilities. The District of Columbia’s claims against the company are false and we will defend aggressively against this overreach.”

Saylor, a well-known “bitcoin whale,” is prolific on Twitter, with more than 2.6 million followers. He made no mention of the lawsuit there Wednesday, instead tweeting about the cryptocurrency. 

Saylor has also been known for his lavish parties and for his playboy lifestyle. In 2012, he purchased a waterfront Miami Beach home for $13.1 million, according to a 2014 story in The Washington Post. The 18,000-square-foot mansion, Villa Vecchia, has 13 bedrooms and 12 bathrooms. 

That purchase came just after Saylor spent $5 million on custom woodwork for Trigate, which Saylor formed from his purchase of three units at the K Street NW Georgetown building between 2006 and 2008, the lawsuit says. Saylor posted on social media frequently before and during renovations of Trigate, during which Saylor lived on his yachts as well as in another penthouse he owned in the city’s Adams Morgan neighborhood. The lawsuit cited those posts as evidence that Saylor considered D.C. his home. 

The lawsuit is filed under a new D.C. law — the False Claims Act — that encourages whistleblowers to report instances of city residents evading tax laws by misrepresenting where they live. The act allows the court to punish tax evaders by imposing three times the amount of the taxes evaded. If the suit is successful, whistleblowers may be awarded up to 30% of the collected funds . 

In Saylor’s case, whistleblowers represented by Cadwalader, Wickersham & Taft filed an April 2021 lawsuit against Saylor alleging tax fraud between 2014 and 2020, according to a release from Racine’s office. The release also says the whistleblowers’ complaint alleges Saylor openly bragged about evading taxes. That complaint too was unsealed and released publicly Wednesday.

  Subscribe to Virginia Business.   Get our daily e-newsletter.