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Musk Lawsuit Insider Trading
Musk Lawsuit Insider Trading
Defendants.
Submitted By:
TABLE OF CONTENTS
INTRODUCTION..........................................................................................................................5
ARGUMENT..................................................................................................................................7
D. The Amendment Is Not Sought in Bad Faith or with a Dilatory Motive. ........................11
CONCLUSION.............................................................................................................................13
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TABLE OF AUTHORITIES
CASES Page(s)
Pasternack v. Shrader,
863 F.3d 162 (2d Cir. 2017).........................................................................................................10
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OTHER AUTHORITIES
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INTRODUCTION
Pursuant to Rule 15(a) of the Federal Rules of Civil Procedure, Plaintiffs Colby Gorog,
Joshua Flint, Louis Robinson, and Michael Lerro, individually and on behalf of all others
similarly situated, respectfully submit this brief in support of their motion for leave to file their
market manipulation by Defendant Elon Musk, from which Musk and his company, Tesla, Inc.,
wrongfully profited to the tune of billions of dollars on the backs of millions of working
Americans. Plaintiffs filed their first Complaint with the Court on June 16, 2022. On September
6, 2022, Plaintiffs filed their First Amended Complaint (“FAC”), containing ten causes of action
including three Securities Exchange Act violations and four Securities Act violations, civil RICO
charges, common law fraud, and unjust enrichment. With Defendants having yet to enter an
appearance, Plaintiffs simplified their pleadings and included the certificates required under the
PSLRA, by filing their Second Amended Complaint (“SAC”) with leave of the Court on
December 13, 2022. Plaintiffs subsequently moved for lead plaintiff certification, which the
Fewer than two months ago, on March 31, 2023, Defendants filed their initial responses
Foundation, Inc. (“DCFI”), and one from Defendants Musk and Tesla, Inc. Pursuant to Rule
41(a), Plaintiffs then voluntarily dismissed DCFI on May 26, 2023. Plaintiffs submit this motion
Since Plaintiffs filed their SAC in December 2022, new evidence has come to light that
further supports Plaintiffs’ claims, namely, further acts of market manipulation by Defendant
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Elon Musk, which Plaintiffs should be permitted to plead. This includes Defendant Musk’s act of
posting the Dogecoin Shiba Inu symbol on the Twitter homepage for three days in April 2022,
spiking the price 30%, only to cause the price to fall when he restored the Twitter blue bird logo.
Furthermore, in light of Defendants’ arguments in their motion to dismiss, Plaintiffs seek leave
Dismiss all claims under RICO and Securities Exchange Act § 17(a).
Consolidate Plaintiffs’ three 10b-5 claims into a single count against Defendant Musk
only.
Plead a single count of insider trading per § 20A of the Exchange Act, against Defendants
Musk and Tesla, Inc., consistent with facts already alleged in the SAC.
Plead additional fact allegations—extant at the time the SAC was filed but only recently
Plead additional fact allegations that have occurred since Plaintiffs’ Second Amended
Complaint was filed in December 2022, including the continued market manipulation of
Add fact allegations to better clarify that Dogecoin is a security under the Howey test.
Add fact allegations of domestic transactions in Dogecoin by Plaintiffs and the Class.
Add fact allegations showing that Defendant Musk took on a fiduciary duty to the
Dogecoin enterprise and its investors including Plaintiffs and the Class.
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Add fact allegations that strengthen the inference of scienter, particularly regarding
Defendants filed their first responses scarcely two months ago, and the parties have yet to
conduct any discovery. Because a clear preference exists for cases to be adjudicated on the
merits, because the interest of justice requires it, and for the reasons stated herein, below,
Plaintiffs respectfully request that the Court grant them leave to file their Third Amended Class
Action Complaint, appended as Exhibit A. The TAC is scarcely longer than the SAC and
Defendants notified Plaintiffs and the Court of their opposition to this motion.
ARGUMENT
In light of developments since Plaintiffs filed their SAC in December 2022, and in light
of Defendants’ arguments in their motion to dismiss, Plaintiffs seek leave of the Court to file
their proposed TAC. Under Rule 15(a) of the Federal Rules of Civil Procedure, a court “should
freely give leave” to amend a complaint “when justice so requires.” That permissive standard for
granting leave to amend promotes a “strong preference for resolving disputes on the merits.”
Williams v. Citigroup Inc., 659 F.3d 208, 212–13 (2d Cir. 2011) (internal quotation marks
omitted). Under that standard, leave to amend “should ordinarily be granted,” and “it is rare that
such leave should be denied.” Ricciuti v. N.Y.C. Transit Auth., 941 F.2d 119, 123 (2d Cir. 1991).
Leave to amend can be denied only where it is sought in “bad faith or [with] dilatory
motive,” where it will prejudice the defendant, where there has been “repeated failure to cure
deficiencies,” or if amendment would be futile. See, e.g., Twahir v. Vill. Care of New York, Inc.,
2011 WL 2893466, at *1 (S.D.N.Y. July 12, 2011) (quoting Foman v. Davis, 371 U.S. 178, 182
(1962)); and Shiah Yih Indus. Co. v. Sitco Importing Co., 1997 WL 304903, at *1–*4 (S.D.N.Y.
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June 5, 1997). Mere delay or the burdens of litigation caused by amendment do not, without
more, furnish grounds to deny leave to amend. See, e.g., Block v. First Blood Assocs., 988 F.2d
344, 350–51 (2d Cir. 1993). “Where, as here, a plaintiff seeks leave to amend his complaint
while a motion to dismiss is pending, a court has a variety of ways in which it may deal with the
pending motion to dismiss, from denying the motion as moot to considering the merits of the
motion in light of the amended complaint.” Clark v. Dematic Corp., 2014 WL 6387166, at *1
(N.D.N.Y. Nov. 14, 2014) (internal quotation marks and citations omitted).
For the reasons outlined herein, below, granting Plaintiffs leave to file the TAC at this
Plaintiffs seek leave to amend their complaint to include additional allegations of fact in
order to refine their class allegations; to remove the Dogecoin Foundation, Inc. as a Defendant;
to better meet the particularity and domesticity requirements of pleading securities fraud; to
reduce the overall number of causes of action while adding a claim for insider trading that better
conforms to the fact allegations Plaintiffs have already pleaded; and to add a limited number of
fact allegations to support that claim. These amendments are in the interest of justice because
they will provide this Court with additional factual allegations to consider when determining
Several of the additional factual allegations Plaintiffs seek to provide have come to light
only over the past six months, since Plaintiffs filed the SAC, namely, Defendant Musk’s
manipulation of the cryptocurrency market by swapping the logo of social media platform
Twitter, a company he controls, for the logo of the Dogecoin cryptocurrency for a period of three
days beginning almost immediately after his attorneys moved to dismiss the instant case. He has
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also tweeted in support of Dogecoin multiple times since December 2022, manipulating the
price. The other factual allegations Plaintiffs seek to add will provide complimentary support to
the facts already alleged in the SAC and help clarify the status of Dogecoin as a domestic
security, and Plaintiffs’ transactions in Dogecoin as domestic, both key questions of law in this
action. Furthermore, reducing of the number of causes of action will further the “important
policy goal of the efficiency and economy of litigation.” In re Direxion Shares ETF Trust, 2012
Granting Plaintiffs leave to amend at this early stage of the litigation will also advance
the well-recognized policy of having claims “resolved upon the merits” rather than dismissed
due to “procedural technicalities.” Assam v. Deer Park Spring Water, Inc., 163 F.R.D. 400, 404
Granting Plaintiffs leave to amend will not cause unfair prejudice to the Defendants
because this case remains in its early stages. A defendant is prejudiced by an amendment only
when it would “require the opponent to expend significant additional resources to conduct
discovery and prepare for trial” or “significantly delay the resolution of the dispute.” AEP
Energy Servs. Gas Holding Co. v. Bank of Am., N.A.., 626 F.3d 699, 725-26 (2d Cir. 2010)
(internal quotation marks and citations omitted). Undue prejudice may arise, for example, when
“an amendment [comes] on the eve of trial and would result in new problems of proof.” State
Teachers Ret. Bd. v. Fluor Corp., 654 F.2d 843, 856 (2d Cir. 1981).
This case is far from the “eve of trial.” Defendants have yet to conduct any discovery or
even file a responsive pleading. Defendants still have ample opportunity to file a responsive
pleading, and submit defensive motions. As to Plaintiffs’ new claim for insider trading,
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“Courts… consider the extent to which the new claims are related to the existing ones and
whether a party has had prior notice of a proposed new claim.” Duling v. Gristede's Operating
Corp., 265 F.R.D. 91, 99 (S.D.N.Y. 2010). Here, Plaintiffs’ proposed new claim is closely
related to the claims pleaded in the SAC, namely, Plaintiffs’ 10b-5, common law fraud, and
unjust enrichment claims, which are based in part upon fact allegations therein, that during the
class period Musk and Tesla traded Dogecoin at a profit concurrent with Plaintiffs and the Class.
Furthermore, Defendants were given prior notice of the proposed TAC when Plaintiffs provided
them with an advance copy on May 23, 2023, and had sufficient time to review the new
allegations, because they notified the Court of their intended opposition to this motion just three
Because the TAC will not require Defendants to expend significant additional resources
nor delay a resolution of the dispute (Defendants will only have to slightly revise their brief in
support of a new motion to dismiss), and because Plaintiffs’ new claim is closely related to their
prior ones, and sufficient notice was given, no argument that Defendants would be prejudiced by
Plaintiffs cannot be faulted for undue delay in seeking leave to amend. Similar to undue
prejudice analysis, courts in this Circuit have found that parties did not unduly delay their request
for leave when they filed their motion prior to discovery. See, e.g., Pasternack v. Shrader, 863
F.3d at 174; Gracia v. City of N.Y., No. 16-CV07329 (VEC), 2017 WL 4286319 at *2 (S.D.N.Y.
Sept. 26, 2017). Defendants entered their first appearances less than five months ago. Not only
has no discovery been conducted, but Defendants have yet to even file a responsive pleading.
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Plaintiffs’ proposed amendment is not sought in bad faith or with dilatory motive. Courts
in this district have often granted plaintiffs leave to amend when it is sought in response to a
motion to dismiss. See, e.g., Thompson v. U.S. Dep't of Educ., 20-cv-693 (AJN), at *7 (S.D.N.Y.
Mar. 30, 2021); Quinones v. PRC Mgmt. Co., LLC, 14-cv-9064 (VEC), at *11 n.7 (S.D.N.Y. July
7, 2015); Technomarine SA v. Giftports, Inc., 758 F.3d 493, 506 (2d Cir. 2014).
In contrast, bad faith may be found when a party fails to follow a court’s instructions
when filing an amended complaint. See, e.g., Presbyterian Church Of Sudan v. Talisman Energy,
Inc., 582 F.3d 244, 267 (2d Cir. 2009) (finding bad faith when plaintiff sought leave to amend
“three years after the deadline for amendment specified in the scheduling order”). Bad faith can
also be found where a party engages in improper behavior in court, such as making knowing
misrepresentations in a prior pleading. See, e.g., United States ex rel. Hayes v. Allstate Ins. Co.,
Here, Plaintiffs seek to file their proposed TAC in good faith, in order to remove a
Defendant, reduce their claims, and in order to better support their remaining claims with
additional fact allegations, including those discovered since the filing of the SAC. The Second
Circuit has found that even a three-year delay in moving to amend a complaint, where new
factual bases for claims have come to light, does not support a finding of bad faith. See Fluor
Corp., 654 F.2d at 856. Because Defendants have yet to conduct discovery or file a responsive
pleading, these amendments cannot be disparaged as a means to delay resolution of this matter.
As the additional allegations contained in the proposed TAC further support Plaintiffs’
well-pleaded 10b-5 claims, the amended complaint is not futile. A proposed amendment is futile
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only if it fails to state a claim under Rule 12(b)(6). See Panther Partners Inc. v. Ikanos
Commc’ns, Inc., 681 F.3d 114, 119 (2d Cir. 2012). When determining whether an amended
complaint states a claim, a court must (i) consider the proposed amendments and the remainder
of the complaint, (ii) “accept as true all non-conclusory factual allegations therein,” and (iii)
“draw all reasonable inferences in plaintiff’s favor to determine whether the allegations plausibly
The proposed amendments would not be futile because they provide further detailed
factual allegations concerning Plaintiffs’ claim that Defendant Elon Musk has been manipulating
the cryptocurrency market and that together with his company, Tesla, Inc., he insider traded on
foreknowledge of his market manipulative moves. First, the new allegations establish that
Dogecoin is a domestic security subject to the Court’s jurisdiction under the Exchange Act.
Second, the new allegations give rise to a strong inference of scienter by plausibly alleging that
Musk also manipulated the market for Bitcoin while Tesla was trading that cryptocurrency.
Third, the new allegations show which of the top 100 Dogecoin “whale wallets” Musk and Tesla,
Inc., were trading from. Fourth, the new allegations show that Musk took extensive
responsibility for the Dogecoin enterprise as a whole, thus giving rise to the fiduciary
No remotely colorable argument can possibly be made that these additional factual
allegations are futile. On the contrary, the TAC provides further support for Plaintiffs’ claims
that Musk is acting essentially as pied piper to the Dogecoin market, and are probative of
scienter in Musk’s and Tesla’s unethical, illegal, and tortious conduct. Far from being futile, the
TAC puts forward a stronger, albeit reduced, set of claims against Defendants.
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complaint, but it is equally obvious that the law does not support such a result. By choosing to
oppose Plaintiffs’ motion for leave to file the TAC, Defendants knowingly place themselves on
the wrong side of well-settled case law promoting judicial economy and the strong judicial
preference for resolution of disputes upon the merits. The interests of justice require that leave to
amend be granted.
CONCLUSION
Plaintiffs’ Motion for Leave to File the Third Amended Class Action Complaint should
be granted.
Respectfully Submitted,
CERTIFICATE OF SERVICE
The undersigned hereby certifies that on the 31st day of May 2023, a true and correct copy of the
above and foregoing document was electronically filed with the Clerk of the Court using the
CM/ECF system, giving notice to all parties in this action.
/s/Evan Spencer
Evan Spencer
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