Keith Gill, a stock trader known for the 2021 GameStop short-squeeze, is facing securities fraud claims in a class-action lawsuit over a recent spate of social media posts that saw the price of GameStop (GME) stocks whipsaw violently between May and June.
However a former federal prosecutor believes the lawsuit is likely “doomed” to fail.
Filed on June 28 in the Eastern District of New York, the complaint intends to sue Gill for orchestrating a “pump and dump” scheme with a series of social media posts beginning May 13.
The complaint alleges that Gill committed securities fraud by failing to adequately disclose the purchase and sales of his GameStop options calls, which allegedly misled his followers and resulted in losses for some investors.
Represented by law firm Pomerantz, plaintiff Martin Radev said he was injured by the alleged “pump and dump” after he purchased a total of 25 shares in GME as well as three call options beginning in mid-May.
Breaking down Roaring Kitty’s return
Gill emerged from a two-year social media hiatus on May 13, posting a series of cryptic memes to his X account, sparking a 180% surge in the price of GameStop shares, which flew from $17.46 to $48.75 by the close of trading on May 14.
In a June 2 post to Reddit, Gill disclosed a sizeable position in GameStop, including 5 million shares of GME stock and 120,000 GME call options with a June 21, 2024 expiry date.
This sent the price of GME surging once again, closing above $45 on the day.
By June 13, Gill shared that he had exercised all 120,000 of these options calls, realizing millions of dollars in gains. Notably, he had used these gains to accumulate further GameStop shares.
The lawsuit claims that Gill did not sufficiently disclose his intent to sell his options calls ahead of time, something that misled his followers and other market participants and resulted in losses for investors.
Complaint is likely “doomed,” says lawyer
In a June 30 blog post from former federal prosecutor Eric Rosen — the founding partner at Dynamis LLP law firm — Rosen said the class-action complaint is “doomed from its inception” and could be easily dismissed if Gill were to file a “well-crafted” motion to dismiss.
Rosen said the claim that Gill should have disclosed his intent to sell his options would not hold up well in court, as no “reasonable person, let alone a reasonable investor,” would expect Gill to hold onto all of their options until the exact time and date of their expiry.
Secondly, Rosen said as it was “clear” the plaintiff was seeking to profit simply from the price impact of Gill’s posts to X, not from the actual content contained in his X posts, it would be difficult to prove one’s status as a “reasonable investor” in a court of law based on this approach.
“It is unreasonable to purchase securities simply because an individual named Roaring Kitty posted innocuous tweets on social media.”
Rosen said the most important part of pursuing a fraud case is proving that a fraudster has outright lied or intentionally misled investors by failing to disclose important information.
He explained it would be incredibly difficult to get past a judge, as a series of random memes posted by someone called “Roaring Kitty” on social media are not claims containing information that can be inherently proven or disproven.