MARA Holdings Wins Dismissal With Prejudice of Securities Class Action Over Bitcoin Accounting Practices

Paul, Weiss secured a significant victory for bitcoin mining company MARA Holdings, Inc. (formerly Marathon Digital Holdings, Inc.) and four current and former executives when the U.S. District Court for the District of Nevada granted our motion to dismiss, with prejudice, a putative securities class action alleging misstatements related to the company’s accounting for its bitcoin assets and mining pool operations.

The shareholder plaintiffs brought claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, alleging that MARA and its executives issued false financial statements and made other misleading statements based on two accounting judgments: the method MARA used to calculate impairment of its bitcoin holdings, and MARA’s recognition of revenue as the operator of a bitcoin mining pool. MARA ultimately determined its accounting practices were inaccurate and restated nearly two years of financial results, but the plaintiffs alleged that MARA and its executives knew the practices were inaccurate months earlier when the SEC’s Division of Corporation Finance began a lengthy comment letter correspondence with MARA questioning the accounting judgments.

In moving to dismiss the complaint, we argued that the plaintiffs failed to plead scienter—knowledge or intent of wrongdoing—because the SEC correspondence reflected good-faith regulatory dialogue, not fraud. The correspondence further showed that MARA made well-intentioned but ultimately incorrect accounting judgments in a novel and complex area lacking authoritative Generally Accepted Accounting Principles (GAAP) guidance. U.S. District Judge Richard Boulware agreed, concluding that the plaintiffs’ allegations did not raise a strong inference of scienter and instead supported the more compelling inference that MARA erroneously believed its accounting methods were correct throughout the class period. The court dismissed the second amended complaint with prejudice.

The Paul, Weiss team includes litigation partners Andrew Ehrlich, who argued the motion, and Matthew Stachel, and counsel Daniel Sinnreich.