MicroStrategy and Its Founder to Pay $40 Million in Tax Fraud Lawsuit

The attorney general for the District of Columbia reached a $40 million settlement with Michael Saylor and the software company he founded, MicroStrategy, in what the attorney general’s office said was the largest income tax fraud recovery in Washington history.

The settlement, which is expected to be announced on Monday, stems from lawsuits filed in 2021 and 2022 accusing Mr. Saylor of evading more than $25 million in income taxes in Washington. Mr. Saylor enlisted MicroStrategy’s help to file fraudulent forms from 2005 through 2020 claiming that he lived in either Virginia or Florida, states with significantly lower income tax rates, and he did not pay any income taxes to the district during that period, the attorney general’s office said.

MicroStrategy and Mr. Saylor deny any wrongdoing. They agreed to the $40 million settlement, which included interest and penalties, to avoid the expense and time of further legal action, according to the settlement, which The Times has reviewed. Mr. Saylor, who is the executive chairman of MicroStrategy, stepped down as chief executive in 2022. As part of a separate agreement between Mr. Saylor and MicroStrategy, he has agreed to pay the full settlement amount, MicroStrategy said in a regulatory filing Monday.

“Michael Saylor and his company, MicroStrategy, defrauded the district and all of its residents for years,” Brian L. Schwalb, the attorney general, said in a statement. “Indeed, Saylor openly bragged about his tax-evasion scheme, encouraging his friends to follow his example and contending that anyone who paid taxes to the district was stupid.”

“As I stated at the time this case began, in 2012 I moved to Florida and made Miami Beach my home. Florida remains my home today, and I continue to dispute the allegation that I was ever a resident of the District of Columbia,” Mr. Saylor said in a statement. “I have agreed to settle this matter to avoid the continued burdens of the litigation on friends, family and myself.”

The lawsuit said that in 2012, “Mr. Saylor embarked on a scheme to fraudulently misrepresent himself to be a resident of Florida,” which has no personal income tax, and bought a house in Miami Beach, obtained a Florida driver’s license and registered to vote in the state.

Mr. Saylor founded MicroStrategy in 1989 and helped the firm become one of the largest corporate buyers of Bitcoin. That bet has been paying off: The price of Bitcoin has soared, and shares of MicroStrategy are up more than 100 percent this year, giving it a market value of $27 billion.

This is not the first time that Mr. Saylor or MicroStrategy has been accused of committing fraud: In 2000, Mr. Saylor and two other MicroStrategy executives settled accounting fraud charges with the Securities and Exchange Commission for about $11 million.

“As we said at the time this suit was filed, this was a personal tax matter involving Mr. Saylor. MicroStrategy was not responsible for his day-to-day affairs and did not oversee his individual tax responsibilities,” Shirish Jajodia, the company’s head of treasury and investor relations, said in a statement. “MicroStrategy has not made, and will not be obligated to make, a financial contribution to the settlement.”

The Washington tax lawsuit, brought by Karl Racine, the former attorney general, was the first of its kind after an amendment in 2021 to the federal antifraud law, the False Claims Act, gave whistle-blowers the power to report on tax fraud in Washington. That year, a whistle-blower filed a lawsuit against Mr. Saylor, and Mr. Racine followed up with the district’s own lawsuit in 2022.

The Biden administration has made cracking down on tax evasion by corporations and the wealthy a central part of its economic agenda, which includes billions to overhaul the Internal Revenue Service.

The lawsuit details Mr. Saylor’s life in the district, where he had bought three luxury condominiums atop a waterfront building in the Georgetown neighborhood from 2006 to 2008. While Mr. Saylor spent millions on renovations for the properties he would later coin the “Trigate,” he spent time on one of his yachts anchored in the Potomac River, as well as at an additional penthouse in the Adams Morgan neighborhood, the lawsuit said.

To support its allegations, the lawsuit cited Mr. Saylor’s social media posts. In one, seemingly from the yacht he stayed on while his home was being renovated, Mr. Saylor tagged his architect, James Van Wynen, and wrote: “Gazing wistfully at my future home while I wait for James to crack the whip on the contractors and herd the cats. I wonder if Tony Stark would be so patient.”

In another, he wrote: “View from my Georgetown balcony this morning. Now I just need to finish renovating the apartment so I can move back in. For now maybe I pitch a tent outside on the terrace.”

MicroStrategy was aware of where Mr. Saylor spent his time, given the fact the company provided him with a security detail and drivers, the lawsuit said. In response to the investigations, MicroStrategy produced spreadsheets recording Mr. Saylor’s daily physical location from 2015 to 2020. They showed that Mr. Saylor “spent a majority or plurality of each year physically present in the district.”