US Crypto Mining Company Marathon Digital Faces Legal Battle Over Alleged Breach of Fiduciary Duties and Unjust Enrichment

US Crypto Mining Company Marathon Digital Faces Legal Battle Over Alleged Breach of Fiduciary Duties and Unjust Enrichment

The CEO and other top executives of Marathon Digital, a United States-based crypto mining company, find themselves embroiled in a legal battle as shareholders accuse them of breaching fiduciary duties, unjustly enriching themselves, and misusing corporate assets.

On July 8, a group of shareholders filed a complaint against Marathon’s CEO, Fred Thiel, and nine other executives in the United States District Court for the District of Nevada. The lawsuit is based on five claims, including alleged violations of the U.S. Securities Exchange Act, breach of fiduciary duties, unjust enrichment, and wasting corporate assets.

The plaintiffs are also seeking potential contributions from Thiel, Merrick Okamoto, Simeon Salzman, and Hugh Gallagher, holding them responsible for alleged wrongful acts that led to a complaint by the U.S. Securities and Exchange Commission (SEC) against the company. However, the specific amount of compensation has not been requested by the legal team representing the shareholders, leaving it to the court’s discretion.

In addition to seeking redress, the shareholders aim to address governance issues within the company. Their proposed remedies include strengthening the board’s oversight of operations, nominating at least four candidates from among the shareholders for board positions, and doing away with the current procedure for directors’ elections.

The legal team representing the shareholders alleges that the company’s management has been downplaying its problems, artificially inflating Marathon’s valuation, receiving excessive compensation, engaging in lucrative insider sales, and obtaining undeservedly high bonuses based on false and misleading statements.

Marathon Digital faced regulatory scrutiny in May when the SEC issued a subpoena related to transactions with related parties during the construction of the company’s facility in Montana. Prior to that, in 2021, the regulator ordered the firm to produce documents and communications concerning the same mining facility.

Despite these challenges, 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.

While the company’s quarterly results were impacted by fluctuations in the price of Bitcoin, Marathon managed to reduce its debt in March by paying off a term loan with Silvergate Bank. This move freed up 3,132 BTC held as collateral for the loan, eliminating $50 million worth of debt and reducing its annual borrowing costs by $5 million.