Keith Gill, a stock trader best known for the 2021 GameStop “short squeeze,” is facing securities fraud charges in a class action lawsuit over a series of recent social media posts that caused GameStop (GME) stock price fluctuated widely between May and June.
However, a former federal prosecutor believes the case is likely to “fail.”
Filed on June 28 in the Eastern District of New York, the complaint seeks to sue Gill for orchestrating a “pump and dump” scheme through a series of social media posts beginning on May 13.
The complaint alleges that Gill committed securities fraud by failing to fully disclose his purchases and sales of GameStop stock options, which allegedly misled his followers and led to losses for some investors.
Represented by the Pomerantz law firm, plaintiff Martin Radev said he was hurt by the alleged “pump and dump” scheme after purchasing a total of 25 GME shares and three stock options starting in mid-May.
Analysis of the return of Roaring Kitty
Gill reappeared after a two-year hiatus from social media on May 13, posting a series of mysterious memes to his X account, causing GameStop stock prices to increase 180%, from $17.46 to $48.75 by the end of trading day 14 May.
In a Reddit post on June 2, Gill disclosed a large position in GameStop, including 5 million GME shares and 120,000 GME call options with an expiration date of June 21, 2024.
This in turn sent GME prices surging, closing above $45 on the day.
By June 13, Gill shared that he had exercised all 120,000 of those call options, reaping millions of dollars in profits. Notably, he used those profits to buy more GameStop stock.
The lawsuit alleges that Gill failed to adequately disclose his intention to sell the call options in advance, which misled his followers and other market participants, resulting in losses for investors.
The complaint is likely to “fail,” according to the lawyer
In a post blog June 30 from former federal prosecutor Eric Rosen — founding partner at the law firm Dynamis LLP — Rosen said the class action complaint “was doomed from the start” and could easily have been dismissed if Gill filed a “carefully prepared motion to dismiss.”
Rosen argued that the requirement that Gill disclose his intention to sell his options would not hold up in court, because no “reasonable person, let alone reasonable investor,” would expect Gill to hold all of his options until the exact time and date of expiration.
Second, Rosen said that since the plaintiff was clearly seeking to profit from the price impact of Gill’s posts on X, not from the actual content of his posts on X, it would be difficult to prove “reasonable investor” status in court based on this approach.
“It is unreasonable to buy securities just because an individual named Roaring Kitty posts harmless tweets on social media.” Rosen said the most important part of pursuing a fraud case is proving that the fraudster lied or intentionally deceived investors by failing to disclose important information.
He explained that it would be difficult to get past a judge, since the series of random memes posted by someone named “Roaring Kitty” on social media do not contain statements that may or may not be provable.
