Public brawl takes place at Empery Digital (EMPD), a bitcoin Treasury company holding 3,723 BTC whose shares have fallen 45% in the last 12 months.
While it’s a small stake 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, said he owned 9.8% of the company, accusing management of reckless behavior and poor governance, allowing employees to “trade tens, or hundreds of millions of dollars in Bitcoin derivatives daily.” He called for the resignation of co-CEO Ryan Lane and the rest of the board, and demanded the sale of all of its bitcoins, returning money to shareholders.
Emery’s management rejected Brown’s claims and offered a different version of recent events. The dispute now covers buyout negotiations, office meetings and the use of Bitcoin derivatives within the company.
“Management attempted to reach an agreement with Mr. Brown because 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 statement on its website. “It is disappointing that Mr. Brown ended these conversations and released his letter to advance his self-serving campaign.”
At its heart is a simple question: Should Empery, which has a market cap of $140 million, continue to grow its bitcoin holdings or sell them and slow down, especially when the price of bitcoin has fallen 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, is arguing in favor of the latter solution.
Brown, who declined to comment for this story, said in his letter that liquidating all bitcoin would narrow the gap between the company’s stock price of about $3.96 and its net asset value of $4.72.
Empery, however, claims that selling all bitcoins 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, as well as spreads, to collect premiums. This is an approach used by other Bitcoin treasury companies, including Metaplanet, the fourth largest Bitcoin holding company, to generate income on their Bitcoin holdings.
In simple terms, this means that the company collects commissions from other market participants who want exposure to Bitcoin price fluctuations. If bitcoin stays within certain price ranges, Empery retains the premium. If this changes suddenly, the company finds itself confronted with the limits defined by the contracts.
It’s personal
The disagreement also became personal.
Brown, a graduate of Harvard College 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 was previously chairman of PharmChem, which was acquired last year for more than its open market price.
He described a January meeting at Empery’s Rockefeller Center office, where he said Lane had him removed by security. Empery says the meeting ended after Brown insisted the company be liquidated immediately and refused to leave unless security escorted him away.
In a Feb. 23 letter, Brown claims the company offered to buy his stock at a higher price in exchange for a standstill deal.
The company, in its message, indicates that it has not launched an offer to purchase Brown’s shares. Instead, he claims Brown’s prime broker contacted the company to explore a potential deal. Empery confirmed discussions had taken place, but said these fell through due to price.
A person familiar with the discussions told CoinDesk Brown that it was seeking $7.50 per share, valuing the company at around $270 million, up from its current market cap of $136 million.
An offer for the board of directors
The proxy fight intensified further on Feb. 26 when Brown filed a notice to run for election to Emery’s board of directors. In the filing, Brown revealed that his stake had grown to 10.3%, representing more than 3.3 million shares.
He criticized the company’s “poison pill” and further referred to “management’s efforts to impose status quo agreements”, arguing that they only serve to consolidate incumbent companies rather than allow shareholders to effect change.
Touting his experience as a Harvard law graduate and former president of PharmChem, Brown said that if elected, he would work to eliminate barriers to shareholder oversight and significantly increase the capital returned to investors.
“The Company’s continued custody of bitcoin serves no ongoing business purpose, as there are dozens of less expensive ways to expose bitcoin,” Brown wrote in the filing.
Bitcoin treasury in limbo
Data from CoinGecko shows that the company’s bitcoins were purchased at an average price of $122,283 each, for a total cost of $455 million. The current value stands at $235.5 million, meaning a sale would result in a realized loss of almost $220 million.
The company nevertheless demonstrated a certain flexibility. In its latest statement, Empery said it could use existing cash or reduce its bitcoin holdings to fund share buybacks or pay off loans, something other treasury companies have done. He stopped short of approving a full sale.
It also said recent buybacks had narrowed the gap between its stock price and net asset value by about 40% in less than a month.
For now, neither side seems ready to back down. The dispute could not only shape Emery’s future, but could also foreshadow what awaits other small public companies with large bitcoin treasuries in a volatile market.
