Strategy Faces Lawsuit as Franklin Templeton Warns of Risks in Corporate Crypto Treasury Models

Strategy (NASDAQ: MSTR), the largest corporate holder of Bitcoin with 597,325 BTC, is facing a class action lawsuit filed by Pomerantz LLP. The lawsuit alleges that the company made false and misleading statements about its Bitcoin investment strategy and failed to adequately disclose the impact of adopting new accounting standards.

Strategy’s Legal Battle Over Bitcoin Investment Strategy

The lawsuit centers on Strategy’s adoption of the Financial Accounting Standards Board's ASU 2023-08, which mandates fair value accounting for crypto assets — marking a shift from the prior cost-less-impairment approach. This change requires assets to be reported at market value rather than historical cost, resulting in $5.9 billion in unrealized losses reported by Strategy in Q1 2025 due to Bitcoin price volatility.

Pomerantz claims that Strategy downplayed the risks associated with Bitcoin volatility and overstated profitability, rendering its public statements "materially false and misleading." Investors who purchased Strategy shares between April 30, 2024, and April 4, 2025, may join the class action lawsuit until the July 15 deadline.

The complaint alleges that Strategy consistently provided overly optimistic assessments of its Bitcoin-focused treasury operations, failing to disclose potential losses under the new accounting standards. These allegations come despite the company’s stock price surging by over 3,328% in the past five years, driven by its Bitcoin accumulation strategy.

Franklin Templeton Warns of Risks in Corporate Crypto Treasury Models

Beyond the ongoing legal challenges, broader industry concerns have emerged. Franklin Templeton Digital Assets analysts have flagged significant risks associated with the corporate crypto treasury model, a strategy popularized by Strategy and now adopted by over 135 publicly traded companies holding Bitcoin, Ethereum, and Solana.

This approach enables firms to raise capital at a premium to net asset value (NAV) and benefit from staking rewards. However, analysts warn that its success hinges on maintaining a market-to-NAV ratio above 1. Falling below this threshold leads to dilutive equity issuance, which can stall capital formation and pressure companies to sell crypto assets to support their stock prices. Such dynamics risk triggering a negative feedback loop that depresses crypto valuations and undermines investor confidence.

Moreover, the volatility of crypto assets introduces financial instability, as demonstrated by Strategy’s $5.9 billion unrealized losses in Q1 2025 following the shift to fair value accounting standards. Companies also face operational and network security risks when holding Proof-of-Stake assets like Ethereum and Solana, where staking rewards come with added complexities.

Successfully managing these challenges while maintaining transparency and investor trust will be critical for the long-term viability of companies adopting this treasury strategy.