A public fight is unfolding at Empery Digital (EMPD), a bitcoin BTC$66,402.89 treasury company holding 3,723 BTC whose shares have slumped 45% in the past 12 months.

While it's a small holding compared to firms like Michael Saylor's Strategy, the boardroom drama with an activist investor brought this company into the spotlight.

In a Feb. 4 letter, investor Tice P. Brown, founder and managing partner of the Woodmont Partners family office, said he owns 9.8% of the firm, accused management of reckless behavior and poor governance, allowing employees to “day-trade tens, or 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 its bitcoin, returning the cash to shareholders.

Empery’s management rejected 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 at the company.

"Management attempted to reach an agreement with Mr. Brown as it believed such an agreement would be in the best interests of the Company and all its shareholders," the company said in a post on its website. "It is disappointing Mr. Brown ended these conversations and issued his letter to advance his self-serving campaign."

At the core is a simple question: Should Empery, which has a market capitalization of $140 million, keep building around its bitcoin holdings or sell them and wind down, especially when the bitcoin price has cratered from its all-time high and most treasury companies are hurting?

Options trading

Brown, who started 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 liquidating all the bitcoin would close the gap between the company’s share price of around $3.96 and its net asset value of $4.72.

Empery, however, says that selling all bitcoin would destroy long-term potential and undermine its strategy.

That strategy involves using its 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 employed by some other bitcoin treasury firms, including Metaplanet, the fourth-largest corporate holder of bitcoin, to generate income against their bitcoin holdings.

In plain terms, that means the company earns fees from other market participants who want exposure to bitcoin price moves. If bitcoin stays within certain price ranges, Empery keeps the premium. If it moves sharply, the company faces limits defined by the contracts.

It's personal

The disagreement also turned personal.

Brown, a graduate of Harvard College and Harvard Law School, noted in recent filings that he has made "a few hundred million dollars of 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 their 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 liquidate immediately and refused to leave unless security escorted him out.

In a Feb. 23 letter, Brown says the company offered to buy his shares at a premium in exchange for a standstill agreement.

The company, in its post, says it did not initiate 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 took place, but said the talks broke down over price.

A person familiar with the talks told CoinDesk Brown sought $7.50 per share, valuing the company at roughly $270 million vs its current market cap of $136 million.

A bid for the board

The proxy fight escalated further on Feb. 26 when Brown filed a formal notice nominating himself for election to Empery’s board of directors. In the filing, Brown disclosed his stake had grown to 10.3%, representing over 3.3 million shares.

He criticized the company's "poison pill" and further referenced “management’s efforts to impose standstill agreements,” arguing they serve only to entrench incumbents rather than allow stockholders to effect change.

Touting his background as a Harvard Law graduate and former chairman of PharmChem, Brown stated that if elected, he would work to remove impediments to shareholder oversight and dramatically increase the capital returned to investors.

"The Company’s continued retention of bitcoin holds no ongoing business purpose, as dozens of cheaper ways to achieve bitcoin exposure exist," Brown wrote in the filing.

Bitcoin treasury in limbo

CoinGecko data shows the company’s bitcoin was purchased at an average price of $122,283 each, costing a total of $455 million. The current value stands at $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 repurchases or repay borrowings, something that other treasury companies have done. It stopped short of endorsing a full sale.

It also said recent buybacks had narrowed the gap between its share price and net asset value by roughly 40% in less than a month.

For now, neither side appears ready to back down. The dispute could shape not only Empery’s future, but also may foreshadow what awaits other smaller public companies with large bitcoin treasuries in a volatile market.