Crypto investors allege Elon Musk is manipulating Dogecoin

By Anne Sherry, J.D.

A suit against Elon Musk and his companies SpaceX and Tesla alleges that the defendants are engaging in a crypto pyramid scheme by manipulating the cryptocurrency Dogecoin. According to the class-action complaint, the class of crypto investors have lost $86 billion since the defendants began buying and talking about Dogecoin in 2019. For the defendants’ alleged buying, marketing, advertising, promoting, and manipulating Dogecoin, the complaint asserts claims for RICO violations, common law fraud, negligence, false advertising, deceptive practices, products liability, and unjust enrichment (Johnson v. Musk , June 16, 2022).

The complaint alleges that Musk and his companies are involved with Dogecoin in a variety of ways:

• Musk began providing advice to, and sharing his contacts with, Dogecoin’s developers in 2019;
• Musk and people in his circle began buying the currency;
• SpaceX named a satellite after Dogecoin, while Tesla accepts it as payment for merchandise;
• Musk has called on celebrities, influencers, and investors to boost the status of the cryptocurrency;
• Musk himself has tweeted repeatedly about Dogecoin, with direct effects on Dogecoin’s price, market cap, and trading volume.

As an example of Musk’s influence on the price of Dogecoin, after users chose Musk as the “CEO” of Dogecoin on April Fool’s Day 2019, its price doubled from $0.0020 to $0.0040. By February 2021, Dogecoin was trading at $0.07. When Musk tweeted, “If major Dogecoin holders sell most of their coins, it will get my full support … I will literally pay actual $ if they just void their accounts,” the price of the coin dropped by 35 percent in 3 days. The complaint details other tweets and announcements from Musk that moved the price of Dogecoin. In April 2021, the plaintiff bought Dogecoin at $0.30 per coin; he sold in June 2022 at $0.08.

The plaintiff alleges that Dogecoin is a crypto pyramid scheme because it has no intrinsic or underlying value, it is not a productive asset, and the number of coins is unlimited. Investors buy in the hope, as described by Bill Gates and Warren Buffett, that a “greater fool” comes along to pay more. The complaint cites other prominent investors and economists as likening cryptocurrency in general, and sometimes Dogecoin specifically, to a Ponzi or pyramid scheme because purchasers only make money based on people who purchase after them.

The complaint describes Musk’s previous run-ins with the SEC: his false claim that he had secured funding to take Tesla private, an investigation into possible insider trading by Musk and his brother, and Musk’s delay in disclosing his stake in Twitter. The plaintiff also points to rumors that the FBI is investigating Musk for pumping and dumping Dogecoin. “Since cryptocurrency is not regulated by the SEC, Defendant Musk has tweeted numerous times over the past three years about Dogecoin to manipulate the price without consequence,” the complaint argues.

The case is No. 22-cv-5037.