Dogecoin investor sues Musk, SpaceX, and Tesla over the "Crypto Pyramid Scheme"
"Dogecoin is not a ... security" apparently
A Dogecoin investor has sued Elon Musk, SpaceX, and Tesla in New York federal court. He claims that Musk & Co. “are engaged in a Crypto Pyramid Scheme (aka Ponzi Scheme) by way of Dogecoin cryptocurrency.”
The investor brings a class action asserting RICO claims for wire fraud and unlawful gambling, among others.
But is it a good class action?
No. There’s a bunch of reasons why. Here’s three.
Defining a Class Action of Crypto Victims
All class actions must define a class of persons who were harmed by the conduct. Generally, everybody in the class must have suffered the same harms in the same ways (commonality under Rule 23). And the class must be ascertainable. Meaning: there must be a reliable and reasonable way to identify the persons harmed.
How does this Dogecoin class action define the class?
The class is initially defined as all individuals or entities who have lost money buying, selling, and/or trading, Dogecoin, since at least April 2019.
This isn’t ascertainable. Sure, you could get a list of every wallet address that traded DOGE. But that doesn’t identify people.
Maybe you could persuade a court to certify a class based on wallet addresses, with any class recovery paid in BTC to those wallet addresses. After all, a New York state court appears receptive to that in a different context (serving notice of a temporary restraining order by an Ethereum-based token):
But that runs into other problems. Jurisdiction.
Basically, the law limits where you can be sued. Anybody can sue you for anything happening anywhere in the state where you live (of, if a business, where you are headquartered or incorporated). That’s general jurisdiction.
But if they sue you outside that state, they can sue you only for wrongs arising out of events in that state. That’s specific jurisdiction.
Musk doesn’t live in New York. And SpaceX and Tesla aren’t headquartered or incorporated there. So under the Supreme Court case Bristol-Myers Squibb v. Superior Court, traders in other states or other countries can’t sue Musk & Co. in New York.
At minimum, the plaintiff should have sued in Texas. And he probably should have limited the class to persons who traded DOGE on a KYC exchange like Coinbase or Kraken. That way, they could get the class’ actual names from the exchanges.
Wire Fraud Class Claims and Commonality Issues
Wire fraud requires that the “object” of the deceitful conduct was obtaining the victims’ money. It can’t just be incidental, per the Supreme Court in Kelly v. United States.
This isn’t Madoff. The class’ money isn’t being funneled to Elon.
At most, the complaint alleges a pump-and-dump scheme. Musk bought DOGE. He tweeted to pump up its price. And then he sold it. (Not saying he did this. Just saying that’s the most alleged by the complaint.)
Which takes us back to commonality.
Does a wire fraud theory work on those facts? Does it require proving that everyone in the class probably saw Elon’s tweets? Are the only victims the persons who personally traded with Musk?
Those are questions we’d be asking if we were Musk’s lawyers. (Or frankly, if we were the DOGE investor’s lawyer. And we would have asked them before we filed the lawsuit.)
Crypto as Unlawful Gambling
Other questions we’d be asking: is crypto unlawful gambling?
Trading penny stocks is risky too. But that’s not gambling. Usually gambling is viewed as games of chance.
Read for Yourself
That’s it for stego law and Warren Terzian LLP’s take. As always, there’s more to it. But that’s all your getting from us.
Well. One more thing. Here’s the complaint in Johnson v. Musk: