MicroStrategy (MSTR) and its founder Michael Sayler have reached a $40 million settlement with the District of Columbia, marking the largest income tax fraud recovery in Washington's history, the New York Times reported Monday.
Shares in MSTR rose over 3% in premarket trading.
The settlement, expected to be announced Monday, results from lawsuits filed in 2021 and 2022, which accused Saylor of evading over $25 million in income taxes by falsely claiming residency in Virginia and Florida from 2005 to 2020, with assistance from MicroStrategy. During this period, Saylor did not pay any income taxes to the district.
MicroStrategy and Saylor deny any wrongdoing but agreed to the settlement, which includes interest and penalties, to avoid further legal expenses and time. Saylor, who became executive chairman of MicroStrategy after stepping down as CEO in 2022, was alleged to have misrepresented his residency to avoid taxes.
“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 the lawsuit states, Saylor in 2012 “embarked on a scheme to fraudulently misrepresent himself to be a resident of Florida,” purchasing a house in Miami Beach, obtaining a Florida driver’s license, and registering to vote in the state.
The lawsuit was initiated by former attorney general Karl Racine and represents a first under a 2021 amendment to the federal antifraud law, the False Claims Act, which empowered whistle-blowers to report tax fraud in Washington. A whistle-blower's lawsuit against Saylor in 2021 prompted Racine to file the district's lawsuit in 2022.