Keith Gill, famously known as “Roaring Kitty” from the 2021 GameStop short-squeeze, is now embroiled in a class-action lawsuit. The lawsuit accuses Gill of securities fraud due to his recent social media activities that caused dramatic fluctuations in GameStop (GME) stock prices between May and June. Despite these claims, a former federal prosecutor suggests the lawsuit is likely “doomed” to fail.
Allegations of a Pump and Dump Scheme
Filed on June 28 in the Eastern District of New York, the complaint targets Gill for allegedly orchestrating a “pump and dump” scheme through social media posts starting on May 13. The lawsuit claims Gill did not adequately disclose his GameStop stock and options transactions, misleading his followers and causing some investors to incur losses.
Plaintiff Martin Radev, represented by the law firm Pomerantz, claims he suffered financial harm from this alleged scheme after purchasing 25 shares and three call options of GME starting in mid-May.
Roaring Kitty’s Return and Market Impact
Gill reappeared on social media on May 13, after a two-year hiatus, posting a series of cryptic memes on his X account. This activity sparked a 180% surge in GameStop shares, driving the price from $17.46 to $48.75 by the end of trading on May 14.
On June 2, Gill revealed on Reddit that he held a significant position in GameStop, including 5 million shares and 120,000 call options set to expire on June 21, 2024. This disclosure caused another spike in GameStop’s stock price, closing above $45 that day.
By June 13, Gill announced he had exercised all 120,000 call options, netting millions in gains and using these profits to acquire more GameStop shares. The stock price experienced significant volatility following these disclosures.
Also Read: Hacks and Fraud Cost Crypto Industry Over $572 Million in Q2 2024
Legal Perspectives and Challenges
The lawsuit contends that Gill misled his followers by not disclosing his intent to sell his options calls in advance, resulting in losses for some investors. However, Eric Rosen, a former federal prosecutor and founding partner of Dynamis LLP, believes the complaint is fundamentally flawed and could be easily dismissed with a well-crafted motion.
Rosen argues that it is unreasonable to expect Gill to disclose his exact trading intentions ahead of time, as no reasonable investor would assume he would hold onto all his options until their expiry date. Furthermore, he suggests the plaintiff’s intent to profit from the market impact of Gill’s posts, rather than their content, weakens their case.
Rosen emphasizes that proving fraud requires demonstrating that the accused intentionally misled investors by omitting crucial information. He believes it would be challenging to convince a judge that Gill’s series of memes constituted deceptive claims, as such posts lack inherent factual claims that can be proven or disproven.
