Keith Gill, also known as Roaring Kitty, is facing allegations of securities fraud in a class-action lawsuit related to GameStop.
The lawsuit claims that his social media activity led to fluctuations in GameStop's stock prices between May and June.
Filed on 28 June in New York's Eastern District, the lawsuit targets Gill for his role in the 2021 GameStop short squeeze.
Represented by Pomerantz law firm, plaintiff Martin Radev claims he suffered damages from the alleged "pump and dump" scheme after buying 35 shares of GME and three call options starting in mid-May.
That post marked his return to social media after a three-year hiatus.
It was perceived as a re-engagement with GameStop securities, causing the stock price to jump by over 74% the day after.
Concurrently, Solana-based memecoins experienced a 500% surge shortly after Gill's social media return.
The lawsuit alleges that Gill failed to properly disclose his transactions involving GameStop options, potentially misleading his followers and causing losses for some investors.
A report from the Wall Street Journal highlighted that Gill had purchased a significant amount of GameStop options just before his May post, raising questions about possible stock manipulation.
Later, in early June, Gill revealed a substantial stake in GameStop through a Reddit post, disclosing ownership of five million GameStop shares and 120,000 call options with a $20 strike price.
This announcement led to a surge of over 70% in GameStop shares during early premarket trading on 3 June.
Gill then exercised all 120,000 call options and increased his holdings to over nine million GameStop shares, resulting in a 15.18% drop in the stock price over the subsequent three trading sessions.
On 13 June, Gill disclosed the purchase of an additional four million GME shares, valued at $262 million.
The lawsuit further alleges that Gill attempted to artificially inflate GameStop's stock prices.
In response to these actions, E-Trade reportedly considered removing him from its platform due to concerns about stock manipulation.
As a consequence of Gill's actions, the plaintiff and other class members claim to have suffered significant financial losses due to the sharp decline in the market value of GameStop securities.
They argue that Gill's manipulation of the market through his social media influence constitutes a violation of federal securities laws, and the lawsuit aims to recover damages for these losses.
The complaint reads:
“[Gill] circulated and disseminated the false and misleading information with the purpose and to the effect that the price of GameStop securities would or was likely to rise.”
Now, the plaintiffs are seeking a court trial.
A Stupid Lawsuit that is a Waste of Time
In a blog post dated 30 June, Eric Rosen, a former federal prosecutor and founding partner at Dynamis LLP law firm, opined that the class-action complaint against Keith Gill is "doomed from its inception" and could be readily dismissed if Gill were to submit a "well-crafted" motion to dismiss.
Rosen argued that the assertion that Gill should have disclosed his intention to sell his options is unlikely to be upheld in court, as no "reasonable person, let alone a reasonable investor," would anticipate Gill to retain all of his options until their precise expiration time and date.
Furthermore, Rosen noted that since it was "clear" the plaintiff was aiming to capitalise on the price impact of Gill's posts on X, rather than the content of his posts, it would be challenging to establish oneself as a "reasonable investor" in a legal setting based on this strategy.
Rosen emphasized that the crux of a fraud case lies in demonstrating that the alleged fraudster has either lied outright or deliberately misled investors by withholding critical information.
He explained that it would be exceptionally difficult to convince a judge, given that a collection of random memes posted by someone named "Roaring Kitty" on social media does not constitute claims that can be inherently proven or disproven.
He noted:
“Generally, only financial advisors or fiduciaries have to disclose their positions or intent or things of that ilk. Roaring Kitty is neither. This too will be a hurdle that the plaintiffs will have to get over, and it will be difficult for them to do so.”
Even the crypto community was quick to bash the plaintiff, saying he is making a mountain out of a molehill.
Roaring Kitty Back with a Dog Tweet?
Just a few days back, Gill shared a tweet containing a cartoon image of a dog glancing sideways and sticking out its tongue, with no accompanying text.
Despite the simplicity of the tweet, the market capitalisation of dog-themed memecoins experienced a significant increase, reaching $36 billion, bolstered by a 2.2% rise within 24 hours.
Conversely, the market capitalisation of cat-themed memecoins also saw growth, climbing to $2.4 billion after a more substantial surge of 16.2% over the same period.
As anticipated, GameStop's (GME) shares maintained their upward trajectory, with the stock rising by 3.68% on the day of the tweet.
Given the correlation between the memecoin GME and GameStop's stock prices, the memecoin also surged by 14.57% within the last 24 hours.
Who is Keith Gill & How Did He Ignited the GameStop Frenzy?
In 2021, Gill, a financial analyst turned Reddit investor known as "Roaring Kitty," emerged as a pivotal figure in the GameStop short squeeze.
His conviction in the undervalued potential of GameStop resonated with numerous retail investors, igniting a movement that propelled the stock into the spotlight.
Gill's posts on Reddit's r/wallstreetbets fuelled a wave of retail investor interest in GameStop, leading to a remarkable 1,600% surge in the stock's price and putting pressure on hedge funds that had bet against it.
He later appeared before Congress to affirm his role as a passionate investor who recognised value in GameStop.
Gill's journey from a conventional financial analyst to a multimillionaire is a narrative of astute investments, internet fame, and the impact of social media.
Through detailed analysis and a charismatic presence, he advocated for investing in GameStop (NYSE) stock when it was trading at around $5 per share.
So what is the GameStop short squeeze?
The GameStop short squeeze, which occurred in January 2021, was an unprecedented event in the stock market.
Inspired by Gill's analysis and disenchanted with the practices of Wall Street hedge funds, retail investors collectively purchased GameStop shares, causing the stock price to skyrocket by over 1,500% to a temporary peak of $483 per share.
This episode underscored the power and influence of retail investors in the digital age.
Today, Gill's financial standing has reached significant heights.
After exercising his call options, he now holds 9,001,000 shares of GameStop, which, at the time of writing, are valued at $24.69 per share, totalling approximately $230 million.
Adding his $6 million in cash, his paper net worth is $236 million.
His impressive portfolio has cemented his status as the fourth-largest investor in GameStop, trailing only major stakeholders like RC Ventures, Vanguard, and BlackRock.
While there is optimism about the potential of GME stock, the future remains uncertain due to the stock's inherent volatility.
Nonetheless, with regard to the lawsuit it seems like he has nothing to worry about and it will be a roaring success.
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