Investigative journalism - Is MicroStrategy the house of cards which will kill the crypto?

2 20

Motto: "Those Who Do Not Learn History Are Doomed To Repeat It." (George Santayana)

At the moment, everyone is following Microstrategy and their quest to reach 100.000 BTC. Right now, 100K of BTC are valued at $5.6B. Billions. But two decades ago, Microstrategy controversial accounting strategies landed them in trouble more than once.

So, my friends, gather around the fire, for I am about to tell you a story about MicroStrategy, and how they almost got bankrupted more than 20 years ago. A story that happened long time ago, before and during the financial crisis of 2008.

If you were one of the early employee of a company, and you are paid in stocks and shares instead of money, for the first 3-4 years, you may worry a bit, until you hear that the company is finally going to have an initial public offering (IPO). Yes, they did that in 1998, before crypto even started to be an idea. When Microstrategy went public, Michael Saylor had $200M in stock, and the price was $20 per share. In just 10 weeks, the price of Microstrategy shares went up to $333, and at this moment Michael Saylor has $14-15B,one of the richest person in US, he could buy Microsoft, Apple and Amazon on a whim, if he wanted to do it. But he didn't. At the end of financial year, March 2000, Microstrategy disclosed that the financial reports from 1998-1999 had some accounting irregularities, and needed to be restated. Instead of previously reported inflated profits, they now got quite big losses, and the hell begin. All the investors started to dump the pumped share, and the price went all the way to $2. Just check this graph, the peak is the moment when they published the restated financial reports.

Funny enough, PricewaterhouseCoopers (PWC) , yes, those ones, just checked their financial report one week before, giving them the thumbs up. Forbes magazine launched and investigation, and soon after PWC did an internal investigation, concluding that the financial reports they audited were fake and misleading. The results were comical, with senior management giving back $10M in improper gains and pay $1M fine ($55M in total were also paid to the auditors to settle the litigation).

What really happened? In 5.10.1999 Microstrategy made a deal with NCR Corporation, and this got the attention of CFRA, as there was some unusual transaction generating revenue, with a $52+M licensing agreement paid by Microstrategy, and a lot of products bought from them by NCR. This is called ''boomerang technique'' in accounting, where practically nobody spend any money, but both made profit. Seems dodgy? Because it is. Looks good on the paper, when you show it to the investors, but nothing more than that. No real gain. Nasdaq reacted and did not liked, MTSR shares dropped by 10%, but Merrill Lynch (yes, that Merrill Lynch that was bought by the Bank of America in the same week when Lehman Brothers got bankrupted in 2009) complained about CFRA unfair complaining, making MTSR shares to recover a bit.

Next, January 2000, CFRA warned everyone second time, with MTSR share price closing to $100, as they brought in a new partner (Exchange Application Inc) and the financial data was very similar to the one related to NCR previously. To make the things worst, the press release and the contract was dated 6.01.2000, while the revenue was recorded on the previous year, 12.1999.

Finally, in March 2001, SEC entered into the game, and they were not happy. We are not talking about Forbes journalists or independent researchers or auditors. SEC was all in, and they asked for the financial reports.

For a fun reading, check this out - the complete SEC report related to Microstrategy.

As yuo can see, the actors implied here are MicroStrategy, NCR, Exchange Application Inc, Merrill Lynch (now Bank of America). So next time when you hear about the bad bankers that need to be replaced by the saviours of humanity, the crypto-supporters and their billion-worth companies, take it with a gram of salt. They are all in it together. The bankers will not go anywhere soon. Most probably they will buy your bitcoin, make billions and you will live the same life like you do it right now. Crypto is a force to reckon with, but only decentralization will bring you freedom. (Damn, i almost feel guilty using Binance Smart Chain to put some extra kick into my retirement fund.).

I will end with a classic quote: ''Not your keys, not your money!'' Think about it and act accordingly.

Extra homework (if you want to read a bit more about it):

All the best,

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don't feel guilty about using BSC but just don't call it DeFi. if you have to give it a name then use CeFi. That way no one is mislead. And people are aware of the risks.

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2 years ago

Actually the right name would be CZefi.

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2 years ago