Marathon Digital, a leading cryptocurrency mining company in the United States, is facing a lawsuit brought on by its shareholders. The court action names Fred Thiel, the CEO, as well as other top-tier executives, citing allegations of fiduciary duty breaches, unjust self-enrichment, and misuse of corporate assets.
Legal actions and claims
The spotlight is squarely on Thiel and nine other Marathon officials in the lawsuit, filed on July 8 in the United States District Court for the District of Nevada.
The executives are facing five claims including violations of the U.S. Securities Exchange Act, breaches of fiduciary responsibilities, wrongful enrichment, and squandering of corporate resources.
The shareholders have not indicated a specific amount in damages they are seeking. Instead, they have left it up to the court’s discretion to decide the appropriate compensation.
Moreover, they are seeking potential reimbursement from Thiel, Merrick Okamoto, Simeon Salzman, and Hugh Gallagher due to alleged wrongful actions that precipitated a U.S. Securities and Exchange Commission (SEC) complaint against Marathon.
In addition to financial restitution, shareholders are also seeking reforms to Marathon’s corporate governance.
They are proposing a boost to the board’s oversight of the company’s operations, the nomination of at least four shareholder representatives to the board, and an overhaul of the existing procedure for the election of directors.
Shareholders’ legal representation has indicated that Marathon management is accused of understating the company’s issues, artificially elevating Marathon’s valuation, accepting disproportionate remuneration, engaging in profitable insider trades, and pocketing inflated bonuses based on false and misleading declarations.
Prior SEC scrutiny and Marathon’s future
Prior to these lawsuits, Marathon was under the scrutiny of the SEC. In May, the company was served with a subpoena regarding transactions involving related parties during its establishment of a facility in Montana.
This was not the company’s first run-in with the SEC, as the regulator had requested the production of documents and communication in 2021 relating to the same mining facility.
Despite these challenges, CEO Thiel maintained a positive outlook. He outlined strategies in May aimed at reducing the company’s net loss, which stood at $12.9 million in Q1 2022. His plans aimed to reduce the net loss to $7.2 million in 2023.
While the fluctuating price of Bitcoin has had an impact on Marathon’s quarterly results, the company has also made strides in reducing its debt.
In March, Marathon cleared a term loan with Silvergate Bank, liberating 3,132 Bitcoin that had been held as collateral. Marathon stated at the time that this would eliminate a $50 million debt, simultaneously reducing its annual borrowing cost by $5 million.
The current lawsuit casts a shadow over these achievements and indicates a tumultuous period ahead for Marathon and its executives. The outcome of the case could potentially shape the future of the company and its governance.
