Marathon Digital, a United States-based cryptocurrency mining company, is currently embroiled in legal trouble as its shareholders accuse CEO Fred Thiel and other top executives of breach of fiduciary duty, unfair enrichment and misappropriation of company assets. The shareholder complaint, filed July 8 in the United States District Court for the District of Nevada, alleges five claims, including violations of the US Securities Exchange Act and misappropriation of company assets.
The legal action is also seeking possible compensation from Thiel, Merrick Okamoto, Simeon Salzman, and Hugh Gallagher, following a complaint filed by the US Securities and Exchange Commission (SEC) against the company. The plaintiff’s legal team has not specified the specific amount of compensation, leave it to the court’s decision.
In addition to seeking compensation, shareholders aim to improve corporate governance by increasing operational oversight of the board. They also seek to nominate at least four candidates from shareholders to the board and eliminate the previous procedure for selecting directors.
The allegations against Marathon management included belittling the company’s problems, artificially inflating its valuation, receiving overcompensation, engaging in lucrative insider trading, and obtaining undeservedly high bonuses based on false and misleading statements.
Earlier in May, Marathon faced a subpoena from the SEC, regarding related party transactions during the construction of its facility in Montana. Regulators have previously requested documents and communications regarding the same mining facility by 2021.
Despite these challenges, CEO Fred Thiel expressed optimism in May, outlining the company’s strategy to reduce its net loss from $12.9 million ($0.12 per share) in Q1 2022 to $7.2 million ($0.05 per share) in 2023.
Despite being hit by the falling Bitcoin price, Marathon managed to reduce its debt in March by paying off a term loan with Silvergate Bank, resulting in the release of 3,132 BTC held as collateral for the loan. This move eliminated $50 million in debt and reduced the company’s annual borrowing costs by $5 million.
As the legal proceedings unfold, the future of Marathon Digital remains uncertain, and its management faces the challenge of addressing the allegations while navigating the volatile cryptocurrency industry.