1 Jul 2024
Roaring Kitty faces securities fraud claims in ‘doomed’ GME lawsuit
Keith Gill is facing a new class-action lawsuit for his recent social media posts. However, a lawyer says the case is likely “doomed” to fail.
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 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 United States District Court for 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 25 shares of GameStop and three call options beginning in mid-May.
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 rocketed 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 five million shares of GameStop stock and 120,000 call options with an expiry date of June 21.
This sent the price of GameStop surging once again, closing above $45 on the day.
By June 13, Gill shared that he had exercised all 120,000 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, which 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 law firm — Rosen said the class-action complaint is “doomed from its inception” and could be easily dismissed if Gill files 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 on 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.
