Keith Gill, a prominent stock trader recognized for his involvement in the GameStop short-squeeze of 2021, is currently entangled in securities fraud allegations within a class-action lawsuit related to a recent flurry of social media posts. These posts led to significant fluctuations in the price of GameStop stocks between May and June.
Nevertheless, a former federal prosecutor has expressed skepticism about the lawsuit’s prospects, indicating it is likely destined to fail.
Officially lodged on June 28 in the United States District Court for the Eastern District of New York, the complaint accuses Gill of orchestrating a “pump and dump” strategy to benefit himself, utilizing a series of enigmatic social media messages beginning on May 13.
The complaint contends that Gill engaged in securities fraud by not adequately revealing his transactions involving GameStop options calls, which supposedly misled his followers and resulted in financial losses for some investors.
Supported by the legal representation of law firm Pomerantz, plaintiff Martin Radev asserted that he suffered losses due to the alleged “pump and dump” scheme after acquiring 25 shares of GameStop and three call options in mid-May.
Delving into Roaring Kitty’s comeback
Gill resurfaced from a two-year hiatus on social media on May 13, sharing several cryptic memes on his account, resulting in a remarkable 180% upsurge in GameStop’s stock price, soaring from $17.46 to $48.75 by the end of trading on May 14.
On June 2, in a Reddit post, Gill disclosed a substantial stake in GameStop, consisting of five million shares of the company’s stock and 120,000 call options expiring on June 21. This disclosure triggered another surge in GameStop’s price, closing above $45 on that day.
By June 13, Gill announced that he had executed all 120,000 options calls, realizing significant gains amounting to millions of dollars, which he then reinvested in further GameStop shares.
The lawsuit alleges that Gill did not adequately announce his intention to sell his options calls in advance, leading to confusion among his followers and other market participants, resulting in financial losses for investors.
Doubts raised by lawyer regarding the lawsuit’s fate
In a blog post on June 30, former federal prosecutor Eric Rosen, who is the founding partner of Dynamis law firm, opined that the class-action lawsuit is fundamentally flawed and could be promptly dismissed if Gill submits a well-argued motion to dismiss.
Rosen contended that the primary claim of the lawsuit—that Gill should have disclosed his plans to sell his options—might not withstand legal scrutiny, as it’s unreasonable to expect Gill to retain all his calls until their expiry date, as per any rational investor’s perspective.
Moreover, Rosen highlighted that the plaintiff seemed primarily interested in capitalizing on the market impact of Gill’s social media posts rather than focusing on their content. This approach could make it challenging to establish one’s status as a “reasonable investor” in court.
Rosen emphasized the criticality of demonstrating that a fraudulent party had deliberately deceived investors by withholding crucial information to substantiate a fraud case. He suggested that the lawsuit’s reliance on ambiguous social media posts by an entity known as “Roaring Kitty” might not hold up in court, lacking clear evidence that could be definitively proven as true or false.
Roaring Kitty confronted with securities fraud allegations in doomed GME lawsuit