A public battle is unfolding at Empery Digital (EMPD), a bitcoin Treasury company with 3,723 BTC whose shares have fallen 45% in the past 12 months.
While that’s a small feat compared to firms like Michael Saylor’s strategy, the boardroom drama with an activist investor thrust that company into the spotlight.
In a Feb. 4 letter, investor Tice P. Brown, founder and managing partner of Woodmont Partners’ family office, said he owns 9.8% of the firm, accusing management of reckless behavior and poor governance, allowing employees to “day trade tens, if not hundreds, of millions of dollars of bitcoin derivatives.” He called for the resignation of co-CEO Ryan Lane and the rest of the board, and demanded the sale of all his bitcoin, returning the cash to shareholders.
Empery management denied Brown’s claims and offered a different account of recent events. The dispute now spans buyout talks, office meetings and the use of bitcoin derivatives in the company.
“Management sought to reach an agreement with Mr. Brown as it believed that such an agreement would be in the best interests 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 talks and issued his letter to further his self-serving campaign.”
At the heart of it is a simple question: Should Empery, which has a market capitalization of $140 million, continue to build around its bitcoin holdings or sell them and liquidate, especially when the bitcoin price has risen from its all-time high and most treasury companies are hurting?
Trading with options
Brown, who began building his stake in December and is now the third-largest shareholder, according to WallStreetZen data and SEC filings, argues for the latter.
Brown, who declined to comment for this story, said in his letter that a liquidation of all bitcoin would close the gap between the company’s share price of about $3.96 and its net asset value of $4.72.
However, Empery says selling all bitcoin would destroy long-term potential and undermine its strategy.
This strategy involves using one’s 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 used by some other bitcoin tax companies, including Metaplanet, the fourth-largest corporate owner of bitcoin, to generate revenue against their bitcoin holdings.
In short, this means that the company earns fees from other market participants who want exposure to bitcoin price movements. If bitcoin stays within certain price ranges, Empery keeps the premium. If it moves strongly, the company faces limits defined by the contracts.
It’s personal
The disagreement also became personal.
Brown, who graduated from Harvard College and Harvard Law School, noted in recent filings that he has made “a couple of hundred million dollars in public and private investments” since 2014 through his family office and previously served as chairman of PharmChem, which was acquired last year at a premium to its open market price.
He described a meeting in January at Empery’s Rockefeller Center office where he said Lane had him removed by security. Empery says the meeting ended after Brown insisted the business be liquidated immediately and refused to leave unless security escorted him out.
In a February 23 letter, Brown says the company offered to buy his shares at a premium in exchange for a standstill agreement.
The company says in its submission that it has not initiated an offer to buy Brown’s shares. Instead, it claims Brown’s prime broker approached the firm to explore a potential deal. Empery confirmed discussions were taking place but said talks broke down over price.
A person familiar with the talks told CoinDesk Brown was seeking $7.50 per share, valuing the company at about $270 million, against its current market value of $136 million.
A bid for the board
The proxy battle escalated further on February 26 when Brown filed formal notice to nominate himself for election to Empery’s board. In the filing, Brown revealed that his stake had grown to 10.3%, representing over 3.3 million shares.
He criticized the company’s “poison pill” and further referred to “management’s efforts to impose standstill agreements,” arguing that they only serve to entrench incumbents rather than allow shareholders to make changes.
Touting his background as a Harvard Law graduate and former chairman of PharmChem, Brown said that if elected, he would work to remove obstacles to shareholder oversight and dramatically increase capital returned to investors.
“The Company’s continued holding of bitcoin serves no ongoing business purpose as there are dozens of cheaper ways to obtain bitcoin exposure,” Brown wrote in the filing.
Bitcoin treasury in limbo
CoinGecko data shows that the company’s bitcoin were bought at an average price of $122,283 each, costing a total of $455 million. The current value is $235.5 million, meaning a sale would result in a realized loss of nearly $220 million.
Still, the company signaled some flexibility. In its latest statement, Empery said it may use existing cash or reduce its bitcoin holdings to fund share buybacks or repay loans, something other state-owned companies have done. It stopped supporting a full sale.
It also said recent buybacks had narrowed the gap between share price and net asset value by about 40% in less than a month.
So far, neither side seems ready to back down. The dispute could shape not only Empery’s future, but could also foreshadow what lies ahead for other smaller public companies with large bitcoin holdings in a volatile market.
