New official documents were filed yesterday regarding the class action lawsuit against Elon Musk for promoting Dogecoin.
This is a class action for $258 billion, therefore of considerable size, exceeding even the estimated value of the total wealth of the richest man in the world.
The class action had been filed in June by Keith Johnson, while the update filed yesterday also bears the signatures of Colby Gorog, Joshua Flint, Louis Robinson, James Duong, Fernando Uriza, Michael Twomey and Jessica Calkins.
The update informs that the plaintiffs have retained an expert witness to explain to the court how and why Dogecoin would be a pyramid scheme.
The Dogecoin pyramid scheme, class action against Elon Musk continues
Pyramid schemes are prohibited by law, and promoting them is also prohibited. Therefore, since Elon Musk has in fact promoted Dogecoin, should the court accept this, inevitably Musk will be involved in some way.
The new document submitted to the court states:
“For every billion dollars that Musk profited in Dogecoin for himself, his family, friends, companies and employees, our clients and the class of around two million people lost that same amount plus exchange fees, miner fees and spread fees. That’s how a pyramid scheme works.”
In fact, the plaintiffs point out that almost everyone who bought Dogecoin after 4 February 2021 lost most of the money they invested, also claiming that the price of DOGE will never again approach its high of 73 cents.
Before 4 February 2021, the price of DOGE in its entire history had never risen above $0.04, not even during the great speculative bubble of late 2017. After that date, however, it skyrocketed first to $0.4 in April, and then as high as $0.73 in May.
In other words, from February to April, its value increased tenfold in just over two months, and then further nearly doubled within a month.
According to the plaintiffs, this incredible increase would not be organic and spontaneous, but generated in some way by the words of Musk, who made billions of dollars from the increase itself. However, to date it is unclear how much Musk really made from trading on DOGE, so much so that he may not even have made that much.
The price of Dogecoin (DOGE)
After the bursting of the speculative bubble in early 2021, the price of DOGE first fell below $0.18 in July of that year, and after briefly rising above $0.3, it later plummeted to below $0.06, around the time the plaintiffs were filing the class action lawsuit.
The plaintiffs’ document filed yesterday is a full 115 pages long with ten lawsuits, seven of them for violations of security laws.
It is worth mentioning, however, that there is still no certainty that DOGE is to be considered a security token, and not a utility token. Indeed, according to what the SEC has argued over the years, it seems more likely that cryptocurrencies such as Dogecoin could be considered utility tokens, rather than security tokens.
Moreover, the plaintiffs allege that Musk somehow admitted to promoting Dogecoin, and reveal that three independent experts have claimed that Musk himself should be held responsible for manipulating the price of DOGE.
Indeed, it seems extremely difficult to argue that Musk’s words spoken between 4 February 2021 and 8 May of the same year did not publicize Dogecoin, just as it seems unlikely that these actions of his did not contribute significantly to the +1,700% marked by the meme coin’s price during that period. What happened next, with the price back just above the level of early February 2021, shows that this was just a real speculative bubble.
Right now, the price of DOGE is at -92% from the highs, so much so that to get back to those levels from the current ones it would have to do a +1,150%, which at this time seems absolutely unlikely in the short or medium term.
Billion-dollar class action: allegations against Elon Musk, a malicious promotion of Dogecoin
This is why the plaintiffs argue that Dogecoin should be considered a pyramid scheme.
Moreover, they add that since the class action was filed on 16 June 2022, Elon Musk has continued to try to “pump up” the price of Dogecoin, when, in fact, it has dropped from 6.3 to 5.9 cents. The fact is that there are now few new buyers, which is evidenced by DOGE’s trading volume, which is now 1/200th of what it was during the spring of 2021.
According to one of the plaintiffs’ attorneys, Santos A. Perez, Elon Musk conspired with the other defendants, committing violations of security and RICO laws.
The plaintiffs also include a US Special Forces veteran, an active member of the National Guard, and a disabled retiree. Each of them lost from a few hundred dollars up to $30,000. According to them, Elon Musk’s false statements are ultimately to blame for their losses.
Elon Musk, right or wrong?
It is unclear what the court’s attitude is toward the plaintiffs’ claims, not least because in financial markets, the risk of losing is the norm, not the exception.
While it is undeniable that Musk’s words have had an overly positive effect on Dogecoin’s market value, it is equally clear that it is not known how much Musk really made from it, or whether he really made money from selling DOGE at high prices.
Moreover, the claim that DOGE should be considered a security seems rather weak, as does the claim that Dogecoin is a pyramid scheme. The only undeniable thing, besides the effect of Musk’s words on the price, is that from February to May 2021 an obvious speculative bubble was triggered, which, as almost always happens in such cases, then burst.
It remains to be seen whether in all this Elon Musk can really be blamed for violating any laws, or whether these are just relatively “normal” dynamics of the financial markets that are absolutely not illegal.