Case 1:22-cv-03026-ALC-GWG Document 41 Filed 01/30/23 Page 1 of 27
`
`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
`
`MARC BAIN RASELLA, Individually and On
`Behalf of All Others Similarly Situated,
`
`
`
`No. 1:22-cv-03026-ALC-GWG
`
`
`
`
`Plaintiff,
`
`v.
`
`
`
`
`
`ELON R. MUSK and ELON MUSK
`REVOCABLE TRUST DATED JULY 22, 2003,
`
`Defendants.
`
`
`
`MEMORANDUM OF LAW IN SUPPORT OF MOTION
`TO DISMISS THE COMPLAINT ON BEHALF OF DEFENDANTS
`
`QUINN EMANUEL URQUHART &
`SULLIVAN, LLP
`Alex Spiro
`Jacob J. Waldman
`51 Madison Avenue, 22nd Floor
`New York, New York 10010-1601
`Telephone: (212) 849-7000
`alexspiro@quinnemanuel.com
`jacobwaldman@quinnemanuel.com
`
`Attorneys for Defendants
`
`
`
`
`
`
`
`
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`
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`

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`Case 1:22-cv-03026-ALC-GWG Document 41 Filed 01/30/23 Page 2 of 27
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`
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`TABLE OF CONTENTS
`
`
`PAGE
`
`PRELIMINARY STATEMENT .............................................................................................................. 1
`
`BACKGROUND..................................................................................................................................... 3
`
`A.
`
`B.
`
`Parties ............................................................................................................................ 3
`
`Plaintiff’s Key Allegations Concerning Musk’s Twitter Purchases .................................. 4
`
`1.
`
`2.
`
`3.
`
`Musk’s Twitter Purchases .................................................................................. 4
`
`Musk’s Twitter-Related Discussions and Messages ............................................ 5
`
`Plaintiff’s Causes of Action................................................................................ 5
`
`LEGAL STANDARD ............................................................................................................................. 6
`
`ARGUMENT .......................................................................................................................................... 7
`
`I.
`
`PLAINTIFF’S CAUSE OF ACTION UNDER SECTION 10(B) FAILS.......................................... 7
`
`A.
`
`B.
`
`C.
`
`Plaintiff Has No Cause of Action for Damages Under Section 10(b) Arising from
`Section 13(d) .................................................................................................................. 7
`
`This Court Should Not Broaden the Remedy for Alleged Breaches of 13(d) .................. 11
`
`Plaintiff Fails to Plead That Musk Formed Any Intent to Control or Acquire
`Twitter During the Class Period .................................................................................... 13
`
`D.
`
`Plaintiff Fails to Plead That Musk Acted With Scienter................................................. 15
`
`II. PLAINTIFF CANNOT PLEAD THAT MUSK ENGAGED IN INSIDER TRADING
`UNDER SECTION 20(A) ............................................................................................................. 19
`
`III. PLAINTIFF’S LOSS CAUSATION ALLEGATIONS ARE PURE SPECULATION .................... 20
`
`CONCLUSIONS ................................................................................................................................... 21
`
`
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`i
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`

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`Case 1:22-cv-03026-ALC-GWG Document 41 Filed 01/30/23 Page 3 of 27
`
`
`
`TABLE OF AUTHORITIES
`
`
`Cases
`
`PAGE
`
`%Aegean Marine Petroleum Network, Inc. Sec. Litig.,%In re Aegean Marine Petroleum Network, Inc. Sec. Litig.,
` 529 F. Supp. 3d 111 (S.D.N.Y. 2021) ................................................................................. 2, 7, 19
`
`%AIG Advisor Grp.,%In re AIG Advisor Grp.,
` 2007 WL 1213395 (E.D.N.Y. Apr. 25, 2007) ............................................................................. 21
`
`%Alexander v. Sandoval,%Alexander v. Sandoval,
` 532 U.S. 275 (2001).................................................................................................................11, 12
`
`%Ashcroft v. Iqbal,%Ashcroft v. Iqbal,
` 556 U.S. 662 (2009)...................................................................................................................6, 20
`
`%ATSI Commc’ns, Inc. v. Shaar Fund, Ltd.,%ATSI Commc’ns, Inc. v. Shaar Fund, Ltd.,
` 493 F.3d 87 (2d Cir. 2007) ............................................................................................................ 12
`
`%Banco Bradesco S.A. Sec. Litig.,%In re Banco Bradesco S.A. Sec. Litig.,
` 277 F. Supp. 3d 600 (S.D.N.Y. 2017) ............................................................................................ 6
`
`%Barrios v. Bello,%Barrios v. Bello,
` 2021 WL 1630594 (S.D.N.Y. Apr. 27, 2021) ..................................................................... 3, 6, 20
`
`%Berman v. Richford Indus., Inc.,%Berman v. Richford Indus., Inc.,
` 26 Fed. R. Serv. 2d 10 (S.D.N.Y. 1978) ...................................................................................... 10
`
`%Boswell v. Skywest Airlines, Inc.,%Boswell v. Skywest Airlines, Inc.,
` 361 F.3d 1263 (10th Cir. 2004) .................................................................................................... 12
`
`%Cent. States, Se. & Sw. Areas Pension Fund v. Fed. Home Loan Mortg. Corp.,%Cent. States, Se. & Sw. Areas Pension Fund v. Fed. Home Loan Mortg. Corp.,
` 543 F. App’x 72 (2d Cir. 2013) .................................................................................................... 16
`
`%City of Rancho Palos Verdes, Cal. v. Abrams,%City of Rancho Palos Verdes, Cal. v. Abrams,
` 544 U.S. 113 (2005)....................................................................................................................... 12
`
`%Dreiling v. Am. Online Inc.,%Dreiling v. Am. Online Inc.,
` 578 F.3d 995 (9th Cir. 2009)........................................................................................................... 8
`
`%Fila v. Pingtan Marine Enter. Ltd.,%Fila v. Pingtan Marine Enter. Ltd.,
` 195 F. Supp. 3d 489 (S.D.N.Y. 2016) .......................................................................................... 20
`
`%Fin. Guar. Ins. Co. v. Putnam Advisory Co., LLC,%Fin. Guar. Ins. Co. v. Putnam Advisory Co., LLC,
` 783 F.3d 395 (2d Cir. 2015) ........................................................................................................ 6, 7
`
`
`
`ii
`
`

`

`Case 1:22-cv-03026-ALC-GWG Document 41 Filed 01/30/23 Page 4 of 27
`
`
`
`%Hallwood Realty Partners, L.P. v. Gotham Partners, L.P.,%Hallwood Realty Partners, L.P. v. Gotham Partners, L.P.,
` 286 F.3d 613 (2d Cir. 2002) ................................................................................... 1, 6, 8, 9, 11, 12
`
`%Issen v. GSC Enter., Inc.,%Issen v. GSC Enter., Inc.,
` 508 F. Supp. 1278 (N.D. Ill. 1981) ................................................................................................. 9
`
`%Jumei Int’l Holding Ltd. Sec. Litig.,%In re Jumei Int’l Holding Ltd. Sec. Litig.,
` 2017 WL 95176 (S.D.N.Y. Jan. 10, 2017) ................................................................................... 18
`
`%Kamerman v. Steinberg,%Kamerman v. Steinberg,
` 891 F.2d 424 (2d Cir. 1989) ............................................................................................. 1, 6, 9, 11
`
`%Kuriakose v. Fed. Home Loan Mortg. Corp.,%Kuriakose v. Fed. Home Loan Mortg. Corp.,
` 897 F. Supp. 2d 168 (S.D.N.Y. 2012) .......................................................................................... 16
`
`%Lentell v. Merrill Lynch & Co.,%Lentell v. Merrill Lynch & Co.,
` 396 F.3d 161 (2d Cir. 2005) .......................................................................................................... 20
`
`%Liberty Nat’l Ins. Holding Co. v. Charter Co.,%Liberty Nat’l Ins. Holding Co. v. Charter Co.,
` 734 F.2d 545 (11th Cir. 1984)......................................................................................................... 8
`
`%Medina v. Tremor Video, Inc.,%Medina v. Tremor Video, Inc.,
` 2015 WL 1000011 (S.D.N.Y. Mar. 5, 2015) ............................................................................... 18
`
`%Motient Corp. v. Dondero,%Motient Corp. v. Dondero,
` 529 F.3d 532 (5th Cir. 2008)....................................................................................................... 8, 9
`
`%O’Hagan,%U.S. v. O’Hagan,
` 521 U.S. 642 (1997)....................................................................................................................... 19
`
`%Penn Cent. Sec. Litig. M.D.L.,%In re Penn Cent. Sec. Litig. M.D.L.,
` Docket No. 56, 494 F.2d 528 (3d Cir. 1974) ................................................................................. 9
`
`%Pierce v. Fordham Univ., Inc.,%Pierce v. Fordham Univ., Inc.,
` 2016 WL 3093994 (S.D.N.Y. June 1, 2016) ................................................................................ 18
`
`%Rhyne v. Omni Energy Svc. Corp.,%Rhyne v. Omni Energy Svc. Corp.,
` 2009 WL 1844474 (W.D. La. June 23, 2009)................................................................................ 9
`
`%S.E.C. v. Yin,%S.E.C. v. Yin,
` 2018 WL 1582649 (S.D.N.Y. Mar. 27, 2018) ............................................................................. 20
`
`%Sanders v. Thrall Car Manu. Co.,%Sanders v. Thrall Car Manu. Co.,
` 582 F. Supp. 945 (S.D.N.Y. 1983) ................................................................................................. 8
`
`%SEC v. AT&T, Inc.,%SEC v. AT&T, Inc.,
` 2022 WL 4110466 (S.D.N.Y. Sept. 8, 2022) ...........................................................................2, 19
`
`
`
`iii
`
`

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`Case 1:22-cv-03026-ALC-GWG Document 41 Filed 01/30/23 Page 5 of 27
`
`
`
`%Shanda Games Ltd. Sec. Litig.,%In re Shanda Games Ltd. Sec. Litig.,
` 2022 WL 992794 (S.D.N.Y. Mar. 31, 2022) ...................................................................... 6, 7, 19
`
`%Special Situations Fund III QP, L.P. v. Deloitte Touche Tohmatsu CPA, Ltd.,%Special Situations Fund III QP, L.P. v. Deloitte Touche Tohmatsu CPA, Ltd.,
` 33 F. Supp. 3d 401 (S.D.N.Y. 2014) ............................................................................................ 10
`
`%Srebnik v. Dean,%Srebnik v. Dean,
` 2006 WL 2790408 (D. Colo. Sept. 26, 2006) .............................................................................. 10
`
`%Starr Int’l Co. v. AIG, Inc.,%Starr Int’l Co. v. AIG, Inc.,
` 648 F. Supp. 2d 546 (S.D.N.Y. 2009) ............................................................................................ 8
`
`%State of California v. Sierra Club,%State of California v. Sierra Club,
` 451 U.S. 287 (1981)....................................................................................................................... 12
`
`%Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc.,%Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc.,
` 552 U.S. 148 (2008)....................................................................................................................... 12
`
`%Takata v. Riot Blockchain, Inc.,%Takata v. Riot Blockchain, Inc.,
` 2022 WL 1058389 (D.N.J. Apr. 8., 2022) ...............................................................................9, 11
`
`%Take-Two Interactive Sec. Litig.,%In re Take-Two Interactive Sec. Litig.,
` 551 F. Supp. 2d 247 (S.D.N.Y. 2008) ............................................................................................ 7
`
`%TCS Cap. Mgmt., LLC v. Apax Partners, L.P.,%TCS Cap. Mgmt., LLC v. Apax Partners, L.P.,
` 2008 WL 650385 (S.D.N.Y. Mar. 7, 2008) ...........................................................................13, 14
`
`%Tellabs, Inc. v. Makor Issues & Rights, Ltd.,%Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
` 551 U.S. 308 (2007)...................................................................................................................7, 15
`
`%Touche Ross & Co. v. Redington,%Touche Ross & Co. v. Redington,
` 442 U.S. 560 (1979)....................................................................................................................... 11
`
`%TransAmerica Mort. Adv., Inc. v. Lewis,%TransAmerica Mort. Adv., Inc. v. Lewis,
` 444 U.S. 11 (1979)......................................................................................................................... 12
`
`Rules / Statutes
`
`<<so: 000>>15 U.S.C. § 18(a) ..........................................................................................................................16, 17
`
`<<so: 001>>15 U.S.C. § 18(c)(9) ........................................................................................................................... 17
`
`<<so: 002>>15 U.S.C. § 78r(a) ................................................................................................................................. 8
`
`<<so: 003>>Fed. R. Civ. P. 9(b) ........................................................................................................................... 6, 7
`
`<<so: 004>>Fed. R. Civ. P. 12(b)(6) ........................................................................................................................ 3
`
`
`
`
`
`
`
`iv
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`Case 1:22-cv-03026-ALC-GWG Document 41 Filed 01/30/23 Page 6 of 27
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`Defendants Elon Musk (“Musk”) and the Elon Musk Revocable Trust Dated July 22, 2003
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`(the “Trust,” and with Musk, “Defendants”) respectfully submit this Memorandum of Law in
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`Support of Defendants’ Motion to Dismiss the Complaint pursuant to Federal Rules of Civil
`
`Procedure (“FRCP”) 9(b) and 12(b)(6) and the Private Securities Litigation Reform Act of 1995
`
`(“PSLRA”):
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`PRELIMINARY STATEMENT
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`Plaintiff tries to harness the spectacle around Musk, his Twitter acquisition, and prior,
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`unrelated public statements to obscure the straightforward fact that Plaintiff’s causes of action have
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`no legal basis.
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`Plaintiff’s keystone claim is that Musk failed to make timely disclosure, under Section
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`13(d) of the Securities Exchange Act of 1934 (the “1934 Act”), of his acquisition of more than 5%
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`of Twitter’s outstanding shares and his supposed intentions around controlling that company.
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`There is, however, no private right of action for damages under Section 13(d) itself, and Plaintiff
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`has not cited a single case awarding damages for a breach of Section 13(d) pursuant to Section
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`10(b) or Rule 10b-5. Plaintiff must, in fact, look to Section 18(a) of the 1934 Act, which provides
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`the exclusive, private damages remedy for breaches of Section 13(d). Kamerman v. Steinberg,
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`891 F.2d 424, 430 (2d Cir. 1989) (“One complaining of a false or misleading statement in a
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`Schedule 13D may seek damages only under Section 18(a) of the Act.”) (end citation omitted);
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`see also Hallwood Realty Partners, L.P. v. Gotham Partners, L.P., 286 F.3d 613, 620 (2d Cir.
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`2002) (“[T]here is no private damages remedy for issuers under § 13(d).”).
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`Plaintiff’s failure to assert a cause of action under Section 18(a) is not an oversight. That
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`provision requires a plaintiff to plead actual reliance on alleged misstatements or omissions within
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`documents filed with the Securities and Exchange Commission (“SEC”). In other words, each
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`member of Plaintiff’s putative class—allegedly “so numerous that joinder of all members is
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`

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`Case 1:22-cv-03026-ALC-GWG Document 41 Filed 01/30/23 Page 7 of 27
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`impracticable,” Compl. ¶ 138—would have to allege the circumstances under which that member
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`specifically and directly relied on the omissions alleged here.
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`For the foregoing reasons alone, as well as the following, Plaintiff’s Complaint should be
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`dismissed with prejudice:
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`First, as discussed above, the Second Circuit has made clear that Plaintiff cannot recover
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`for a breach of Section 13(d) by seeking damages under Section 10(b) or Rule 10b-5. Rather,
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`Plaintiff can seek damages, if at all, under Section 18(a) of the 1934 Act. Plaintiff has not asserted
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`such a claim, however, because Section 18(a) requires a plaintiff to plead and prove direct reliance,
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`on an individual basis, which is effectively impossible for a putative class of investors.
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`Second, Plaintiff cannot plead that Defendants engaged in insider trading of Twitter stock
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`under Section 20(A) of the 1934 Act. The only purported material non-public information
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`(“MNPI”) Musk allegedly possessed “concern[ed] his ownership of Twitter common stock and
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`intentions for Twitter.” Compl. ¶ 153. Insider trading claims, however, arise only where (i) a
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`company insider, such as an officer or director, trades company stock while possessing MNPI in
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`violation of a duty to the company; or (ii) a non-insider misappropriates information in breach of
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`a duty to the source of the information. See, e.g., In re Aegean Marine Petroleum Network, Inc.
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`Sec. Litig., 529 F. Supp. 3d 111, 176 (S.D.N.Y. 2021); SEC v. AT&T, Inc., 2022 WL 4110466, at
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`*36 (S.D.N.Y. Sept. 8, 2022). Plaintiff does not even try to plead that Musk was a Twitter insider,
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`fails to identify MNPI about Twitter he supposedly possessed, and cannot plead that he breached
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`a duty to the source of the information—which sources was himself.
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`Third, Plaintiff’s allegations negate any potential inference of scienter. The inference
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`Plaintiff seeks—that Musk deliberately, and with intent to mislead, failed to make timely
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`disclosure of his acquisition of 5% of Twitter stock or his purported intentions around control—is
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`2
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`Case 1:22-cv-03026-ALC-GWG Document 41 Filed 01/30/23 Page 8 of 27
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`not remotely cogent or compelling. Plaintiff alleges that Musk’s practice—on at least 20 previous
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`occasions—was to make timely 13(d) disclosures, and that he was, at the time, CEO of at least
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`three major companies, including Tesla and Space-X, such that this single failure compels an
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`inference of inadvertence on the part of Musk or his organization. And Plaintiff fails to plead a
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`cogent reason for embarking upon a scheme to conceal the acquisition of Twitter shares beginning
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`on March 25, 2022, only to disclose that purported scheme 10 days later, on April 4, 2022.
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`Although Plaintiff provides a laundry list of purported scienter allegations, none of them is
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`sufficient to overcome that the far more compelling inference, based on Plaintiff’s own allegations,
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`is non-fraudulent inadvertence.
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`Finally, Plaintiff’s loss causation assertions rely necessarily on rank speculation that in a
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`counterfactual, hypothetical world in which Musk disclosed his acquisition of Twitter stock at a
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`different, earlier time, the stock would have experienced the same rise it allegedly experienced in
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`response to his ultimate disclosure (or would have risen at all). Plaintiff’s speculation is
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`insufficient to meet even the basic plausibility burden under FRCP 12(b)(6).
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`For the foregoing reasons, the Complaint should be dismissed with prejudice.
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`BACKGROUND1
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`A.
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`Parties
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`Defendant Elon Musk is a well-known investor and Chief Executive Officer of multiple
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`companies, including Twitter and Tesla, and is “also the CEO and founder of several other
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`technology companies, including Space-X, and the Boring Company.” Compl. ¶ 23.
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`The Defendant Trust is a revocable trust of which Musk is the sole trustee. Id. ¶ 25.
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`1 Solely for purposes of this Motion to Dismiss, and without waiver of any rights or
`arguments, Defendants accept as true well-pleaded allegations in the Complaint. See Barrios v.
`Bello, 2021 WL 1630594, at *2 (S.D.N.Y. Apr. 27, 2021) (noting well-pleaded allegations
`accepted as true for purposes of a motion to dismiss).
`
`3
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`

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`Case 1:22-cv-03026-ALC-GWG Document 41 Filed 01/30/23 Page 9 of 27
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`Lead Plaintiff Oklahoma Firefighters Pension and Retirement System is a public pension
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`fund that allegedly manages nearly $4 billion in assets. Id. ¶ 22. Lead Plaintiff represents a
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`putative class that claims to have been damaged by selling shares of Twitter during the Class
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`Period. Id. Neither Lead Plaintiff, nor the putative class, claims to have suffered out-of-pocket
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`losses, but instead claims that, in a hypothetical world in which Musk disclosed his ownership of
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`Twitter shares at some point between March 14 and March 24, 2022, Lead Plaintiff and the putative
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`class would have sold Twitter shares at some point between March 25, 2022 and April 4, 2022 for
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`more than they actually did.
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`B.
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`Plaintiff’s Key Allegations Concerning Musk’s Twitter Purchases
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`1.
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`Musk’s Twitter Purchases
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`The Complaint’s central assertion is that Musk failed timely to disclose, by filing a
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`Schedule 13D, that he had acquired 5% or more of Twitter’s outstanding common shares, as
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`required under Section 13(d) of the 1934 Act and SEC Rule 13d-1(a) promulgated thereunder.
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`See, e.g., id. ¶¶ 2, 4. Notably, Plaintiff highlights that Musk had previously complied with the
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`requirements of Section 13(d) on at least 20 different occasions over the prior decade, and had
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`even advised others accurately about the reporting requirements. Compl. ¶¶ 57-59.
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`Although Plaintiff emphasizes Musk’s Class Period purchases, they are only part of a
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`longer string of acquisitions dating back to January 31, 2022. See id. ¶ 63. As pleaded, between
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`January 31, 2022 and March 24, 2022—before the Class Period begins—Musk acquired more than
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`59 million shares. His purchases allegedly included various single-day acquisitions larger than
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`those he made during the Class Period, including several that were well above 2 million shares, a
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`purchase of 3.6 million shares on February 3, and a purchase of 4.8 million shares on February 7.
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`Indeed, the 4.8 million-share purchase was the single largest alleged purchase. See id. ¶¶ 63, 82.
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`Notably, during the Class Period Musk made just five of his 42 alleged purchases, specifically
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`4
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`

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`Case 1:22-cv-03026-ALC-GWG Document 41 Filed 01/30/23 Page 10 of 27
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`between March 25, 2022 and April 1, 2022. See id.
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`Plaintiff further alleges that on March 14, 2022, Musk’s Twitter holdings crossed the 5%
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`threshold, after which he had until March 24, 2022 to disclose his holdings pursuant to Section
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`13(d). The Class Period therefore is alleged to run from March 25, 2022 to April 4, 2022—
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`respectively the first day Plaintiff alleges Musk was required to disclose his interest in Twitter and
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`the day Plaintiff alleges Musk made that disclosure.
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`2.
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`Musk’s Twitter-Related Discussions and Messages
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`Plaintiff includes various allegations about Musk’s messages and discussions before and
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`during the Class Period, none of which indicates, as discussed below, that he had formed an intent
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`as to his course of action concerning Twitter. For instance, Plaintiff alleges that Musk issued
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`Tweets about Twitter’s current operations, including asking if a “new platform is needed” and that
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`he was considering “building a new social media platform.” Id. ¶¶ 73-75 (emphasis added).
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`Plaintiff alleges that Musk sent an instant message to his ex-wife—who Plaintiff nowhere alleges
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`had any involvement in the alleged transactions or related companies—that he could “[m]aybe
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`buy” Twitter. Id. ¶ 67. Plaintiff points to discussions between Musk and Twitter executives in
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`which Musk offers to “help,” and that he generally supports changes to Twitter, as well as non-
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`committal communications about “potentially” joining the board and that he was “considering
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`various options.” Id. ¶¶ 78-80. On April 3, 2022, Plaintiff claims Twitter invited Musk to join its
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`board, though Plaintiff alleges that Musk responded by noting that “important paperwork” was not
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`yet complete that would “allow for me to hopefully join” Twitter’s board. Id. ¶ 84. On April 4,
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`2022, Musk allegedly agreed to join Twitter’s board, and on April 5, 2022 (after the Class Period)
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`Twitter publicly announced that Musk had joined. Id. ¶¶ 84, 93.
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`3.
`
`Plaintiff’s Causes of Action
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`Plaintiff asserts causes of action arising from the foregoing under Section 10(b) of the 1934
`
`5
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`

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`Case 1:22-cv-03026-ALC-GWG Document 41 Filed 01/30/23 Page 11 of 27
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`
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`Act and Rule 10b-5. Plaintiff also asserts a cause of action under Section 20(A) of the 1934 Act,
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`claiming Musk traded Twitter stock while in possession of MNPI about his own “ownership of
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`Twitter common stock and intentions for Twitter.” Id. ¶ 153. And Plaintiff alleges that Musk is a
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`control person of the Trust under Section 20(a).
`
`LEGAL STANDARD
`
`To avoid dismissal, a complaint “must ‘contain sufficient factual matter, accepted as true,
`
`to state a claim to relief that is plausible on its face.’” Barrios, 2021 WL 1630594, at *2 (quoting
`
`Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). “However, the Court need not credit ‘[t]hreadbare
`
`recitals of the elements of a cause of action, supported by mere conclusory statements.” In re
`
`Shanda Games Ltd. Sec. Litig., 2022 WL 992794, at *2 (S.D.N.Y. Mar. 31, 2022) (quoting
`
`Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
`
`As discussed above and herein, Plaintiff may not resort to Section 10(b) and Rule 10b-5 to
`
`seek damages for alleged breaches of Section 13(d). Kamerman, 891 F.2d at 430; Hallwood, 286
`
`F.3d at 620. Regardless, claims under Section 10(b) and Rule 10b-5 require, inter alia, “a material
`
`misrepresentation or omission,” “scienter,” and “loss causation.” In re Banco Bradesco S.A. Sec.
`
`Litig., 277 F. Supp. 3d 600, 630 (S.D.N.Y. 2017) (citation omitted). Further, this cause of action
`
`“is subject to the heightened pleading requirements of [FRCP 9(b)] and the [PSLRA].” Shanda
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`Games, 2022 WL 992794, at *2. “FRCP 9(b) requires that the complaint ‘state with particularity
`
`the circumstances constituting fraud or mistake,’” id. (quoting Fin. Guar. Ins. Co. v. Putnam
`
`Advisory Co., LLC, 783 F.3d 395, 403 (2d Cir. 2015)), while the PSLRA “holds private securities
`
`plaintiffs to an even more stringent pleading standard” for asserting misrepresentations or
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`omissions that requires plaintiff to “‘(1) specify each statement alleged to have been misleading
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`[and] the reason or reasons why the statement is misleading; and (2) state with particularity facts
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`giving rise to a strong inference that the defendant acted with the required state of mind.’” Id.
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`6
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`

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`Case 1:22-cv-03026-ALC-GWG Document 41 Filed 01/30/23 Page 12 of 27
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`
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`(quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 321 (2007)). Indeed, “[t]o
`
`determine that an inference of scienter is strong, the court must decide whether ‘a reasonable
`
`person would deem the inference of scienter cogent and at least as compelling as any opposing
`
`inference one could draw from the facts alleged.’” Id. (quoting Tellabs, 551 U.S. at 324).
`
`Insider trading claims under Section 20(A) are likewise subject to FRCP 9(b) and the
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`PSLRA. See In re Aegean, 529 F. Supp. 3d at 175. “In order to state a claim under Section
`
`[20(A)], plaintiffs must: (1) plead a predicate insider trading violation of the Exchange Act and (2)
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`allege sufficient facts showing ‘that the defendant traded the security at issue contemporaneously
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`with the plaintiff.’” Shanda Games, 2022 WL 992794, at *7 (quoting In re Take-Two Interactive
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`Sec. Litig., 551 F. Supp. 2d 247, 309 (S.D.N.Y. 2008)).
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`Plaintiff fails to satisfy the pleading requirements for their asserted causes of action.
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`ARGUMENT
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`I.
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`PLAINTIFF’S CAUSE OF ACTION UNDER SECTION 10(b) FAILS
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`A.
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`Plaintiff Has No Cause of Action for Damages Under Section 10(b) Arising
`from Section 13(d)
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`Plaintiff effectively alleges a single omission: Musk’s failure timely to file a Schedule 13D
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`disclosing his Twitter stake pursuant to Section 13(d) of the 1934 Act and Rule 13d-1(a). Plaintiff
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`claims that this alleged omission is also a breach of Section 10(b) and Rule 10b-5 that entitles the
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`putative class to damages equivalent to the difference between the transaction price of Twitter
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`shares sold during the Class Period, and the allegedly greater price for which those shares would
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`have sold during the Class Period had Musk filed a Schedule 13D at some point between March
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`14 and March 24, 2022.
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`Plaintiff’s cause of action fails because Plaintiff cannot seek damages under Section 10(b)
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`or Rule 10b-5 for a breach of Section 13(d). To start, it is well-settled that “there is no private
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`Case 1:22-cv-03026-ALC-GWG Document 41 Filed 01/30/23 Page 13 of 27
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`damages remedy for issuers under § 13(d).” Hallwood, 286 F.3d at 620. “[N]or is there a private
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`damages remedy for shareholders under that provision.” Starr Int’l Co. v. AIG, Inc., 648 F. Supp.
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`2d 546, 573-74 (S.D.N.Y. 2009) (end citation omitted); see also Sanders v. Thrall Car Manu. Co.,
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`582 F. Supp. 945, 961 (S.D.N.Y. 1983) (“To the extent that plaintiff suggests that a private remedy
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`for damages is implicit in the recognition of a private right of action for injunctive relief, the cases
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`that have addressed that question in the context of § 13(d) are to the contrary.”), aff’d, 730 F.2d
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`910 (2d Cir. 1984). Each other Circuit to address this point has reached the same conclusion. See
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`Dreiling v. Am. Online Inc., 578 F.3d 995, 1003 (9th Cir. 2009) (“We note that Sections 16(b) and
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`13(d) were not devised to provide private litigants with another means of litigating securities
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`fraud.”); Motient Corp. v. Dondero, 529 F.3d 532, 536 (5th Cir. 2008) (“[T]here is no private cause
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`of action for money damages under Section 13(d).”); Liberty Nat’l Ins. Holding Co. v. Charter
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`Co., 734 F.2d 545, 564 n.41 (11th Cir. 1984) (“[T]he Exchange Act provides for private rights of
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`action expressly in several other places . . . [w]e may infer from this that when it chose to do so,
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`Congress knew how to create explicitly a private right of action on behalf of the issuer.”).
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`Rather, a plaintiff seeking damages for a breach of Section 13(d) must resort, if at all, to
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`Section 18(a) of the 1934 Act. Section 18(a) provides an express remedy for alleged misstatements
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`or omissions within documents filed publicly with the SEC:
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`Any person who shall make or cause to be made any statement in any application,
`report, or document filed pursuant to this chapter or any rule or regulation
`thereunder . . . which statement was at the time and in the light of the circumstances
`under which it was made false or misleading with respect to any material fact, shall
`be liable to any person . . . who, in reliance upon such statement, shall have
`purchased or sold a security at a price which was affected by such statement . . . .
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`15 U.S.C. § 78r(a).
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`The Second Circuit has expressly endorsed that Section 18(a) is the exclusive private
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`damages remedy for breaches of Section 13(d), explaining that “[o]ne complaining of a false or
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`Case 1:22-cv-03026-ALC-GWG Document 41 Filed 01/30/23 Page 14 of 27
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`misleading statement in a Schedule 13D may seek damages only under Section 18(a) of the Act.”
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`Kamerman, 891 F.2d at 430; see also Hallwood, 286 F.3d at 619 (“[C]ourts have found significant
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`the existence of an express remedy under § 18(a) of the Williams Act.” 286 F.3d at 619. And
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`recently, in Takata v. Riot Blockchain, Inc., 2022 WL 1058389 (D.N.J. Apr. 8., 2022), after
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`expressly requesting briefing on this issue, the District of New Jersey thoroughly reviewed
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`applicable caselaw and reached the conclusion that a “Section 13(d) violation may not give rise to
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`a private right of action for damages under Section 10(b).” Id. at *10; see also id. (“The trend in
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`Section 13(d) cases indicates a strong reluctance of, if not an absolute bar to, allowing suits for
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`damages, both under 10(b) and 18(a).”).
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`Numerous other courts have likewise concluded that Section 18(a) provides the exclusive
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`damages remedy for breaches of Section 13 of the 1934 Act. See Motient, 529 F.3d at 536
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`(“Section 18(a) provides the sole basis for a private right of action for damages resulting from a
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`violation of Section 13(d).”); Rhyne v. Omni Energy Svc. Corp., 2009 WL 1844474, at * 9 (W.D.
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`La. June 23, 2009) (“Plaintiffs have made no claim under Section 18(a), and their claims for
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`damages under Section 13(d) must be dismissed.”); Issen v. GSC Enter., Inc., 508 F. Supp. 1278,
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`1295 (N.D. Ill. 1981) (“[A]lthough a private right to injunctive relief may exist by implication in
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`favor of injured individual investors under section 13(d) . . . it is clear that section 18(a) of the
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`[1934 Act] . . . provides the sole basis for a private right of action for damages resulting from a
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`violation of section 13(d).”).
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` Other courts have concluded that Section 18(a) provides the exclu