Ben Strack

<div id="highlights-block_634449e04b97f" class="highlights">
 <ul>
 <li>Eugene Scalia was solicitor of the US Department of Labor from 2002 to 2003 and was its secretary from September 2019 to January 2021</li>
 <li>The case is “a warning shot across the bow,” partner at Cadwalader, Wickersham &amp; Taft says</li>
 </ul>
 
</div>



A former US secretary of labor and the son of the late Supreme Court justice Antonin Scalia is representing MicroStrategy founder Michael Saylor in the lawsuit alleging that he evaded paying $25 million in Washington, DC, taxes, Blockworks has learned.&nbsp;



Eugene Scalia, a partner in the DC office of Gibson, Dunn &amp; Crutcher, returned to the firm after serving as US Secretary of Labor from September 2019 to January 2021. He previously worked as solicitor of the US Department of Labor from 2002 to 2003.



Scalia is co-chair of Gibson, Dunn &amp; Crutcher’s administrative law and regulatory practice group, as well as a senior member of its labor and employment and financial institutions practices.



Working in private practice, Scalia has represented employers in matters under the National Labor Relations Act and in other actions related to employment discrimination, according to a bio. He has worked on “whistleblower” investigations and litigation since the 2002 enactment of <a href="https://www.law.cornell.edu/wex/sarbanes-oxley_act" target="_blank" rel="noreferrer noopener">the Sarbanes-Oxley Act</a>.



A representative for Scalia has not returned requests for comment.&nbsp;



<h3 class="wp-block-heading">DC attorney general takes the case</h3>



Washington, DC Attorney General Karl Racine <a href="https://cms.blockworks.co/michael-saylor-and-microstrategy-sued/" target="_blank" rel="noreferrer noopener">launched a lawsuit</a> against Saylor and his company on Aug. 31. The legal action was brought under DC’s False Claims Act — passed in January 2021.



MicroStrategy, the Virginia-based business intelligence platform Saylor founded in 1989, is also a defendant in the case, as Racine alleges the firm conspired to help him evade taxes. MicroStrategy said in a statement that the District of Columbia’s claims against the company are “false,” adding that the case is Saylor’s personal tax matter.&nbsp;



The stock price of the publicly traded company, which <a href="https://cms.blockworks.co/are-companies-aside-from-microstrategy-still-buying-bitcoin/" target="_blank" rel="noreferrer noopener">holds about 130,000 bitcoins</a>, was down roughly 16% over the past month, as of Monday at 12:00 pm ET. The price of bitcoin has fallen around 12% in the same period.



Whistleblowers first came to law firm Cadwalader, Wickersham &amp; Taft about the tax fraud allegations against Saylor, former Maryland Attorney General Douglas Gansler, who is also a partner at the firm, told Blockworks.



Though Gansler declined to share the identities of these whistleblowers, he said they are “people intimately familiar with [Saylor’s] whereabouts.” Saylor claims to be a resident of Florida despite residing in the Georgetown neighborhood of DC for a majority of the year, according to <a href="https://oag.dc.gov/sites/default/files/2022-08/Tributum%20v.%20Saylor%20-%20DC%20FCA%20Complaint_0.pdf" target="_blank" rel="noreferrer noopener">the complaint</a> that Cadwalader, Wickersham &amp; Taft filed in April 2021.



Saylor, in a statement sent to <a href="https://www.virginiabusiness.com/article/bitcoin-whale-michael-saylor-accused-of-tax-fraud/" target="_blank" rel="noreferrer noopener">Virginia Business</a> last month, said he “respectfully disagrees” with the tax fraud allegations. He added that he bought a house in Miami Beach a decade ago, noting that he lives, votes and has reported for jury duty in Florida.



The DC attorney general’s office did its own investigation and concluded it was “a case very worthy of being brought,” Gansler said. The complaint was unsealed after it was brought to a DC Superior Court judge.



“Typically the government does not take over the case, nor do top tier law firms like Cadwalader take the case, unless there’s a reason to do so,” he added.



<h3 class="wp-block-heading">What now?</h3>



The passage of the False Claims Act — which permits the court to impose damages of three times the amount of the taxes evaded — has opened up a new way to report alleged fraud to the attorney general. This is the first suit brought under the new law in DC.



Gansler said the damages could total roughly $165 million. Though evading taxes is nothing new, he noted, the allegations stand out because of the magnitude of money allegedly not paid to DC.



Most defendants in Saylor’s scenario seek to get the case dismissed, Gansler added, though no such motion has yet been filed.&nbsp;



A representative for MicroStrategy has not returned Blockworks’ requests for comment about the allegations.&nbsp;



“This case is a warning shot across the bow that if you in fact live in the District of Columbia and you owe the District of Columbia money, you should pay your taxes,” Gansler said. “It’s been illegal forever.”



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Michael Saylor

Ex-US Labor Secretary Representing Michael Saylor in Alleged Tax Fraud Suit

Morgan Chittum

<div id="highlights-block_620ac3e04a4ad" class="highlights">
 <ul>
 <li>Her Majesty’s Revenue and Customs has not taken control of the three NFTs, but is instead preventing them from being sold via court order, according to Sky News</li>
 <li>Three people have been arrested on suspicion of attempting to defraud the UK authority</li>
 </ul>
 
</div>



The United Kingdom’s tax enforcement agency seized three NFTs (non-fungible tokens) in a $1.9 million fraud probe — the country’s first confiscation of a digital collectible.&nbsp;



Three people have been arrested on suspicion of fraud stemming from Her Majesty’s Revenue and Customs’ (HRMC) investigation. Their names were not disclosed.



Nick Sharp, HMRC’s deputy director of economic crime, <a href="https://www.bbc.com/news/business-60369879" target="_blank" rel="noreferrer noopener">told BBC</a> Monday that the authority is “constantly adapting to new technology to ensure [they] keep pace with how criminals and evaders look to conceal their assets.”



The probe, Sharp said, “serves as a warning to anyone who thinks they can use crypto assets to hide money from HMRC.” The agency, however, has not taken custody of the NFTs and is instead preventing them from being sold via court order, according to <a href="https://news.sky.com/story/hmrc-officials-seize-nft-crypto-assets-as-three-arrested-on-suspicion-fraud-12541831" target="_blank" rel="noreferrer noopener">Sky News</a>.



The suspected organized and value added tax (VAT) fraud involves 250 alleged fake companies. Suspects used fake addresses, virtual private networks (VPNs), unregistered phones and stolen identities to try to hide illicit activities from the agency.&nbsp;



The news follows another high-profile government seizure. Last week, the US Department of Justice (DOJ) <a href="https://cms.blockworks.co/couple-arrested-as-government-recovers-3-6b-in-stolen-bitcoin/" target="_blank" rel="noreferrer noopener">recouped</a> more than $3.6 billion worth of cryptocurrency connected with the 2016 Bitfinex hack.



“Financial crime strikes at the core of our national and economic security,” Acting Executive Associate Director Steve Francis of Homeland Security Investigations said in a statement.



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<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/the-breakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha in your inbox. Think like an analyst. </li>
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