Keith Gill, a stock trader famed for his role in the 2021 GameStop short-squeeze, is confronting securities fraud allegations in a class-action lawsuit tied to a recent surge in GameStop stock prices due to his social media activity between May and June.
Despite this, a former federal prosecutor views the lawsuit as likely to fail.
The complaint, filed on June 28 in the United States District Court for the Eastern District of New York, accuses Gill of orchestrating a “pump and dump” scheme through a series of social media posts starting on May 13.
The complaint claims that Keith Gill engaged in securities fraud by allegedly not properly disclosing his transactions of GameStop options calls, which purportedly misled his followers and led to losses for some investors.
Plaintiff Martin Radev, represented by law firm Pomerantz, stated he suffered losses from the alleged “pump and dump” scheme after purchasing 25 shares of GameStop and three call options starting in mid-May.
Roaring Kitty made a comeback on May 13 after a two-year absence from social media, sharing a series of enigmatic memes on his X account. This move triggered a 180% surge in GameStop shares, which soared from $17.46 to $48.75 by the end of trading on May 14.
In a Reddit post on June 2, Gill revealed a substantial stake in GameStop, which included five million shares of GameStop stock and 120,000 call options set to expire on June 21.
As a result, the price of GameStop surged once more, closing above $45 on that day.
By June 13, Gill announced that he had exercised all 120,000 options calls, generating millions of dollars in profits. Importantly, he used these profits to acquire additional GameStop shares.
The lawsuit alleges that Gill failed to adequately disclose his plans to sell his options calls in advance, which allegedly misled his followers and other market participants, leading to losses for investors.
Lawyer predicts the complaint is likely to fail.
In a June 30 blog post by former federal prosecutor Eric Rosen, now a founding partner at Dynamis law firm, Rosen asserted that the class-action complaint is “doomed from the start” and could be swiftly dismissed with a well-prepared motion to dismiss.
Rosen argued that the claim suggesting Gill should have disclosed his plans to sell his options lacks merit in court. According to Rosen, it is unreasonable to expect Gill, or any investor, to hold onto options until their exact expiry date and time, making the allegation unlikely to withstand legal scrutiny.
Rosen further emphasized that the plaintiff’s apparent aim to profit solely from the price impact of Gill’s X posts, rather than the substantive content within them, complicates establishing one’s status as a “reasonable investor” in court.
“It is unreasonable to invest in securities solely based on innocuous tweets posted by an individual named Roaring Kitty on social media,” Rosen remarked.
According to Rosen, the crux of pursuing a fraud case hinges on demonstrating that a fraudster deliberately misled investors by either outright lying or withholding crucial information. He elaborated that proving such deception would be exceedingly challenging in this instance, as a collection of arbitrary memes shared by someone named “Roaring Kitty” on social media does not inherently contain verifiable claims.
