Case 1:22-cv-05037-AKH Document 74 Filed 05/31/23 Page 1 of 13

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

COLBY GOROG, JOSHUA FLINT, Civil Action No.: 1:22-cv-05037-AKH

LOUIS ROBINSON, and MICHAEL LERRO,
individually and on behalf of all others
similarly situated, MEMORANDUM OF LAW IN SUPPORT
Plaintiffs, OF PLAINTIFFS’ OPPOSED MOTION
v. FOR LEAVE TO FILE THIRD
AMENDED CLASS ACTION
ELON MUSK, and TESLA, INC., COMPLAINT

Defendants.

Submitted By:

EVAN SPENCER LAW, PLLC

Evan Spencer, Esq.
305 Broadway, 7th Floor
New York, NY 10007
Tel. 917.547.4665
[email protected]
EvanSpencerLaw.com

Attorney for Plaintiffs and the Class

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TABLE OF CONTENTS

TABLE OF AUTHORITIES .........................................................................................................3

INTRODUCTION..........................................................................................................................5

ARGUMENT..................................................................................................................................7

A. The Requested Amendment Furthers the Interest of Justice……………...........................8

B. The Requested Amendment Will Not Unduly Prejudice the Defendants...........................9

C. The Requested Amendment Is Not Unduly Delayed.........................................................10

D. The Amendment Is Not Sought in Bad Faith or with a Dilatory Motive. ........................11

E. The Proposed Amendment Is Not Futile. .........................................................................11

CONCLUSION.............................................................................................................................13

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TABLE OF AUTHORITIES

CASES Page(s)

AEP Energy Servs. Gas Holding Co. v. Bank of Am., N.A.,

626 F.3d 699 (2d Cir. 2010).........................................................................................................9

Assam v. Deer Park Spring Water, Inc.,

163 F.R.D. 400 (E.D.N.Y. 1995)..................................................................................................9

Block v. First Blood Assocs.,

988 F.2d 344 (2d Cir. 1993) ........................................................................................................7

Clark v. Dematic Corp.,

2014 WL 6387166 (N.D.N.Y. Nov. 14, 2014) ............................................................................8

Duling v. Gristede's Operating Corp.,

265 F.R.D. 91 (S.D.N.Y. 2010)…………………………………………………………………9

Gracia v. City of N.Y.,

2017 WL 4286319 (S.D.N.Y. Sept. 26, 2017).............................................................................10

In re Direxion Shares ETF Trust,

2012 WL 717967 (S.D.N.Y. Mar. 6, 2012) .................................................................................9

Panther Partners Inc. v. Ikanos Commc’ns, Inc.,

681 F.3d 114 (2d Cir. 2012).........................................................................................................11

Pasternack v. Shrader,
863 F.3d 162 (2d Cir. 2017).........................................................................................................10

Presbyterian Church Of Sudan v. Talisman Energy, Inc.,

582 F.3d 244 (2d Cir. 2009).........................................................................................................11

Quinones v. PRC Mgmt. Co., LLC,

14-cv-9064 (VEC), at *11 n.7 (S.D.N.Y. July 7, 2015) ………………………………………..10

Ricciuti v. N.Y.C. Transit Auth.,

941 F.2d 119 (2d Cir. 1991)..........................................................................................................7

Shiah Yih Indus. Co. v. Sitco Importing Co.,

1997 WL 304903 (S.D.N.Y. June 5, 1997)...................................................................................7

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State Teachers Ret. Bd. v. Fluor Corp.,

654 F.2d 843 (2d Cir. 1981).......................................................................................................9, 11

Technomarine SA v. Giftports, Inc.,

758 F.3d 493 (2d Cir. 2014)……………………………………………………………...............10

Thompson v. U.S. Dep't of Educ.,

20-cv-693 (AJN), at *7 (S.D.N.Y. Mar. 30, 2021)………………………...…………………….10

Twahir v. Vill. Care of New York, Inc.,

2011 WL 2893466 (S.D.N.Y. July 12, 2011) .................................................................................7

United States ex rel. Hayes v. Allstate Ins. Co.,

686 F. App’x 23 (2d Cir. 2017) ....................................................................................................11

Williams v. Citigroup Inc.,

659 F.3d 208 (2d Cir. 2011).............................................................................................................7

OTHER AUTHORITIES

Fed. R. Civ. P. 12(b)(6)..................................................................................................................11

Fed. R. Civ. P. 15(a) .......................................................................................................................5

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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

Third Amended Class Action Complaint (“TAC”) (“Exhibit A”).

This is a securities class action arising from an undisguised course of cryptocurrency

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

Court granted on January 3, 2023.

Fewer than two months ago, on March 31, 2023, Defendants filed their initial responses

to Plaintiffs’ allegations—a pair of motions to dismiss, one from Defendant Dogecoin

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

for leave to file the TAC.

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

to amend in order to accomplish the following objectives:

 Dismiss all claims under RICO and Securities Exchange Act § 17(a).

 Remove the Dogecoin Foundation, Inc. as a Defendant.

 Refine Plaintiffs’ class allegations.

 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

uncovered by Plaintiffs—showing that certain large Dogecoin “wallets” belong to

Defendant Musk and/or to Tesla, Inc.

 Plead additional fact allegations that have occurred since Plaintiffs’ Second Amended

Complaint was filed in December 2022, including the continued market manipulation of

Dogecoin by Defendant Musk.

 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

Defendant Musk’s manipulation of the market for the Bitcoin cryptocurrency.

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

significantly shorter than the FAC.

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

incipient stage of the litigation is appropriate.

A. The Requested Amendment Furthers the Interest of Justice

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

whether Plaintiffs have adequately stated claims for relief.

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

WL 717967, at *6-7 (S.D.N.Y. Mar. 6, 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

(E.D.N.Y. 1995). Justice therefore requires that leave to amend be granted.

B. The Requested Amendment Will Not Unduly Prejudice the Defendants

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

days later, on May 26, 2023.

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

the requested amendment is remotely supportable.

C. The Requested Amendment Is Not Unduly Delayed

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.

Thus, there is no undue delay.

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D. The Amendment Is Not Sought in Bad Faith or with a Dilatory Motive

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.,

686 F. App’x 23, 27–28 (2d Cir. 2017).

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.

E. The Proposed Amendment Is Not Futile

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

give rise to an entitlement to relief.” Id.

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

relationship required to state a claim for insider trading.

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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It is obvious why Defendants would prefer a technical dismissal of a strengthened

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,

Dated: May 31, 2023

By: /s/ Evan Spencer

Evan Spencer Law, PLLC
305 Broadway, 7th Floor
New York, NY 10007
Tel. 917.547.4665
[email protected]
EvanSpencerLaw.com

Attorney for Plaintiffs and the Class

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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