Pampena v. Musk

Background

Giuseppe Pampena filed a securities class action under Section 10(b) of the Securities Exchange Act on behalf of people who sold publicly traded Twitter securities between May 13, 2022, and October 4, 2022. The complaint alleges that Elon Musk made false or misleading statements, manipulated the market to reduce Twitter’s valuation, failed to timely file a required ownership disclosure after acquiring more than 5% of Twitter’s shares, and later filed a materially misleading disclosure. The complaint also alleges that Musk made misleading statements about fake accounts on Twitter after Tesla’s stock price fell substantially. The court did not decide the merits of those allegations in this order.

Lead Plaintiff Selection

The Private Securities Litigation Reform Act requires the court to appoint the “most adequate plaintiff” as lead plaintiff. The court considered competing motions from Mohammed Samara and the Twitter Investor Group, consisting of Brian Belgrave, Steve Garrett, John Garrett, and Nancy Price.

Both movants timely responded to the required public notice. The court found that the Twitter Investor Group had the largest financial interest under both proposed methods of calculation. Under the shares-sold method, the Group’s members sold 28,389 shares during the class period, compared with Samara’s 7,035 shares. Under Samara’s proposed recoverable-loss method, the court concluded that losses attributed to Belgrave and Steve Garrett alone totaled $232,232, exceeding Samara’s reported recoverable loss of $146,956.90.

Because the Group had the largest financial interest, it was presumed to be the most adequate plaintiff. The court then examined the typicality and adequacy requirements of Federal Rule of Civil Procedure 23. The Group alleged that it sold Twitter shares at artificially depressed prices because of Musk’s alleged statements and suffered damages as a result. The court found that this injury was like the injuries alleged by other proposed class members. It also found no evidence of conflicts of interest or unique defenses that would prevent the Group from adequately representing the class.

The court rejected Samara’s arguments that the Group’s loss calculations were inadequate, that Steve Garrett’s initial certification contained a disqualifying error, and that the Group lacked a sufficient pre-litigation relationship or plan for working together. The court treated Garrett’s initial omission as a clerical error that he promptly corrected through a supplemental certification. It also found that the Group had submitted a declaration describing its communication protocols and ability to work together. The court therefore found that the Group met Rule 23’s requirements for appointment as lead plaintiff.

Lead Counsel

The Group selected Bottini & Bottini, Inc. and Cotchett, Pitre & McCarthy, LLP as lead counsel. The court noted that the lead plaintiff, rather than the court, generally selects counsel, subject to the court’s approval. It found that the proposed firms had experience in securities class actions.

Samara argued that the firms were inadequate because they also represented a different putative class of Twitter investors in a related action involving the same alleged misconduct. The court rejected that argument, finding no evidence that the firms had a conflict of interest or that the parallel actions created the type of concern that would undermine their representation.

Disposition

The court GRANTED the Twitter Investor Group’s motion, DENIED Samara’s motion, and appointed Bottini & Bottini, Inc. and Cotchett, Pitre & McCarthy, LLP as lead counsel. This order addressed leadership of the proposed class action; it did not resolve whether the allegations against Musk were legally or factually valid.