A proposed class action lawsuit accuses Elon Musk and his companies SpaceX and Tesla of operating a pyramid scheme by way of their involvement with the Dogecoin cryptocurrency.
The 26-page complaint out of New York, filed amid an unprecedented downturn in the cryptocurrency market, scathes that Dogecoin is no more than a fraud whereby “greater fools” have been tricked into buying the volatile asset at a higher price. The case says that proposed class members have lost roughly $86 billion since Musk, SpaceX and Tesla began buying, developing, promoting, supporting and operating Dogecoin in 2019.
Want to stay in the loop on class actions that matter to you? Sign up for ClassAction.org’s free weekly newsletter here.
Bluntly, the suit charges that Musk, SpaceX and Tesla have falsely and deceptively promoted Dogecoin as a legitimate investment when, in fact, it has no value whatsoever and have taken advantage of Musk’s position as one of the richest people in the world to manipulate the asset for “profit, exposure and amusement.”
Dogecoin is not a currency, stock, or security. It’s not backed by gold, or other precious metal, or anything at all. You can’t eat it, grow it, or wear it. Dogecoin does not generate cash flow. It doesn’t pay interest or a dividend. It has no unique utility compared to other cryptocurrencies. It is not part of a new internet or the metaverse. It is not based upon anything of value. It’s not secured by a government or private entity.”
The lawsuit contends that the overall value of Dogecoin is derived “solely from the hope that the price will rise indefinitely under the ‘greater fool theory,’” which argues that money can always be made from an overvalued asset as long as someone else—a “greater fool”—is willing to pay a higher price for it.
Since cryptocurrency is not regulated by the U.S. Securities and Exchange Commission (SEC), Musk has been able to use Twitter to manipulate the price of the asset without consequence, the filing claims.
“Every statement and endorsement from Defendants on social media regarding Dogecoin has knowingly caused millions of people to spend billions of dollars buying into the Dogecoin Crypto Pyramid Scheme,” the case says, calling the defendants’ marketing and support of Dogecoin “confusing and deceptive” and incomplete with regard to the risk of investment.
Although the Dogecoin market cap once reached $93 billion, thanks in part to Musk’s deployment of an army of corporations, influencers, billionaires, celebrities and other supporters, the asset’s total market value was under $7 billion at the time of the lawsuit’s filing, the complaint relays.
The plaintiff, who first purchased Dogecoin in April 2021, when the asset’s value was $0.30 per coin, demands for similarly situated investors $86 billion in compensatory damages and $172 billion in treble damages. The filing accuses Musk and his companies of engaging in illegal wire fraud, illegal gambling, negligence, false advertising and unjust enrichment.
The suit says that Billy Markus, who with Jackson Palmer launched Dogecoin in 2013 at a price of $0.0002 per coin, has openly admitted that the asset was created in roughly two hours as a joke and that its value relied substantially on the “greater fool” theory. At the end of 2013, the case states, the market cap of Dogecoin was “only $3.71 million.”
In 2019, Musk, whose current estimated net worth exceeds $250 billion, began talking to Dogecoin developers, “providing advice and sharing his vast Rolodex of contacts,” the lawsuit says. In the years since, the suit relays, Musk has used his position as president of SpaceX and Tesla to collect the support of celebrities, the ultra-rich and myriad influencers, along with legions of social media followers, to boast about the price, trading volume and market cap of Dogecoin.
As the suit tells it, Musk, a Twitter user so prolific that he is currently in the process of buying the platform, knew full well that his posts were affecting Dogecoin’s overall value, a rise that the complaint says continued through 2019, into 2020 and beyond.
“Defendant Musk is and has been fully aware that his tweets regarding Dogecoin had direct effects on the Dogecoin price, market cap, and trading volume,” the lawsuit says.
During Musk’s appearance as host on Saturday Night Live on May 9, 2021, he stated, among other things, that Dogecoin was “the future of currency” before agreeing that Dogecoin was “a hustle,” the lawsuit says. The case contends that Musk’s SNL appearance “reflected negatively” on Dogecoin for a number of reasons and caused its trading volume to skyrocket and its price to plummet.
“Within four days, the Dogecoin market cap dropped from $95 billion to $45 billion (nearly 50%) and the price dropped from $0.73 to $0.38,” the case reads, noting that this dip was short lived thanks to subsequent encouraging tweets from Musk.
After going into detail on nearly every Dogecoin-related Musk tweet from 2019 into this year, a time in which the price of the asset swung up seemingly at Musk’s whim, the lawsuit finally tells of June 2022, when the plaintiff claims to have sold his Dogecoin at a price of $0.08 per coin, losing “approximately 70% of his investment.”
“Since Dogecoin peaked in May 2021, it has dropped to as little as $0.052, down 92% from its all-time high,” the suit says, alleging broadly that over the last three years, Musk, SpaceX and Tesla have manipulated the price of Dogecoin “on behalf of themselves individually, as well as family members, friends, employees and followers.”
How does the suit say Dogecoin is a pyramid scheme, exactly?
The lawsuit cites New York Attorney General Letitia James in defining a pyramid scheme as, essentially, “a fraudulent system of making money based on recruiting an ever-increasing number of ‘investors.’”
The case succinctly alleges that Dogecoin is a pyramid scheme because the asset has no intrinsic or underlying value, is not productive, exists in an unlimited amount, and derives its value solely from the hope that its price will rise as more people buy in.
“Defendants knew, or with the exercise of reasonable care, should have known that Dogecoin is a pyramid/[P]onzi scheme,” the suit alleges.
Who does the lawsuit look to cover?
The suit looks to represent all individuals and entities who have lost money buying, selling and/or trading Dogecoin since at least April 2019.
I own some Dogecoin. What’s next?
When a class action is initially filed, there’s usually nothing you need to do to “join” the suit. It’s only if and when a case settles (not a guarantee!) that a consumer or investor might need to act. This typically involves filling out and submitting a claim form online or by mail.
If you’re “included” in a case like the one detailed here, you might receive a notice by mail and/or email in the event of a settlement. This notice will probably contain information on, for instance, how, where and by when to file a claim; your legal rights; any proof you might need to submit; and more details for “class members.”