A public fight is developing over Empery Digital (EMPD), a bitcoin treasury company that owns 3,723 BTC whose shares have fallen 45% in the last 12 months.
While it’s a small holding compared to companies like Michael Saylor’s Strategy, boardroom drama with an activist investor put this company in the spotlight.
In a Feb. 4 letter, investor Tice P. Brown, founder and managing partner of family office Woodmont Partners, who said he owns 9.8% of the company, accused management of reckless behavior and poor governance, allowing employees to “trade tens or hundreds of millions of dollars in bitcoin derivatives.” He called for the resignation of co-CEO Ryan Lane and the rest of the board of directors, and demanded the sale of all of his bitcoins, returning the cash to shareholders.
Empery management rejected Brown’s claims and offered a different account of recent events. The dispute now spans purchase talks, office meetings and the company’s use of bitcoin derivatives.
“Management attempted to reach an agreement with Mr. Brown because it believed such an agreement would be in the best interest of the company and all of its shareholders,” the company said in a post on its website. “It is disappointing that Mr. Brown ended these conversations and released his letter to advance his self-serving campaign.”
At its core is a simple question: Should Empery, which has a market capitalization of $140 million, continue to build around its bitcoin holdings or sell and reduce them, especially when the price of bitcoin has plummeted from its all-time high and most treasury companies are suffering?
Options Trading
Brown, who began increasing his stake in December and is now the third-largest shareholder, according to WallStreetZen data and SEC filings, advocates the latter.
Brown, who declined to comment for this article, said in his letter that liquidating all bitcoins would close the gap between the company’s share price of about $3.96 and its net asset value of $4.72.
Empery, however, says that selling all the bitcoins would destroy the long-term potential and undermine his strategy.
That strategy involves using your holdings to support an options trading plan that involves selling out-of-the-money calls and puts, along with spreads, to collect premiums. It’s an approach employed by some other bitcoin treasury firms, including Metaplanet, the fourth-largest corporate bitcoin holder, to generate income from their bitcoin holdings.
In simple terms, that means the company earns commissions from other market participants who want to be exposed to bitcoin price movements. If bitcoin stays within certain price ranges, Empery keeps the premium. If it moves abruptly, the company faces limits defined by contracts.
it’s personal
The disagreement also became personal.
Brown, a graduate of Harvard University and Harvard Law School, noted in recent filings that he has made “a few hundred million dollars in public and private investments” since 2014 through his family office and previously served as president of PharmChem, which was acquired last year at a premium to its open market price.
He described a January meeting at Empery’s Rockefeller Center office, where he said Lane had security remove him. Empery says the meeting ended after Brown insisted that the company be liquidated immediately and refused to leave unless security escorted him out.
In a Feb. 23 letter, Brown says the company offered to buy his shares at a premium in exchange for a standstill agreement.
The company, in its post, says it did not initiate an offer to buy Brown’s shares. Instead, he claims Brown’s top broker approached the company to explore a potential deal. Empery confirmed discussions took place but said they failed because of price.
A person familiar with the discussions told CoinDesk that Brown was seeking $7.50 per share, valuing the company at about $270 million versus its current market capitalization of $136 million.
An offer for the board
The proxy fight escalated further on February 26 when Brown submitted formal notice nominating himself for election to Empery’s board of directors. In the filing, Brown revealed that his stake had increased to 10.3%, representing more than 3.3 million shares.
He criticized the company’s “poison pill” and also referred to “management’s efforts to impose standstill agreements,” arguing that they only serve to entrench incumbents rather than allowing shareholders to make changes.
Flaunting his experience as a Harvard Law graduate and former president of PharmChem, Brown said that, if elected, he would work to remove impediments to shareholder oversight and dramatically increase capital returned to investors.
“The Company’s continued retention of bitcoins serves no ongoing business purpose, as there are dozens of cheaper ways to gain exposure to bitcoins,” Brown wrote in the filing.
Bitcoin treasury in limbo
Data from CoinGecko shows that the company’s bitcoin was purchased at an average price of $122,283 each, for a total cost of $455 million. The current value is $235.5 million, meaning a sale would result in a realized loss of nearly $220 million.
Even so, the company showed signs of some flexibility. In its latest statement, Empery said it could use existing cash or reduce its bitcoin holdings to fund share buybacks or repay loans, something other treasury companies have done. He stopped short of endorsing an outright sale.
It also said recent buybacks had narrowed the gap between its share price and net asset value by about 40% in less than a month.
For now, neither side seems willing to back down. The dispute could shape not only Empery’s future, but may also foreshadow what awaits other smaller public companies with deep troves of bitcoin in a volatile market.
