Marathon Digital, a cryptocurrency mining company based in the United States, is currently entangled in legal troubles as its shareholders accuse CEO Fred Thiel and other top executives of breaching fiduciary duties, unjust enrichment, and misusing corporate assets. The shareholder complaint, filed on July 8 in the United States District Court for the District of Nevada, alleges five claims, including violations of the U.S. Securities Exchange Act and misappropriation of corporate assets.
The legal action also seeks potential compensation from Thiel, Merrick Okamoto, Simeon Salzman, and Hugh Gallagher, following a complaint filed by the U.S. Securities and Exchange Commission (SEC) against the company. The plaintiffs’ legal team has not specified a specific amount of compensation, leaving it to the court’s decision.
In addition to seeking compensation, the shareholders aim to rectify the company’s governance by enhancing the board’s oversight of operations. They also seek to nominate at least four candidates from shareholders to the board and eliminate the previous procedure for directors’ elections.
The allegations against Marathon’s management include downplaying the company’s issues, artificially inflating its valuation, receiving excessive compensation, engaging in lucrative insider sales, and obtaining undeservedly high bonuses based on false and misleading statements.
Earlier in May, Marathon faced a subpoena from the SEC, related to transactions with related parties during the construction of its facility in Montana. The regulator had previously requested documents and communications regarding the same mining facility in 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 impacted by the decline in the price of Bitcoin, Marathon managed to reduce its debt in March by paying off a term loan with Silvergate Bank, resulting in the release of the 3,132 BTC held as collateral for the loan. This move eliminated $50 million of debt and reduced the company’s annual borrowing costs by $5 million.
As the legal proceedings unfold, Marathon Digital’s future remains uncertain, and its management faces the challenge of addressing the allegations while navigating the volatile cryptocurrency industry.
