Keith Gill, the stock trader famously associated with the 2021 GameStop short-squeeze, is now confronting allegations of securities fraud in connection with a recent flurry of social media posts that triggered significant volatility in GameStop’s stock price between May and June.
Despite these claims, a former federal prosecutor has expressed skepticism about the viability of the lawsuit. Filed on June 28 in the United States District Court for the Eastern District of New York, the complaint asserts that Gill orchestrated a “pump and dump” scheme through enigmatic posts on social media starting May 13.
According to the complaint, Gill is accused of securities fraud for allegedly failing to adequately disclose his transactions involving GameStop options calls, which purportedly misled his followers and resulted in financial losses for some investors.
Plaintiff Martin Radev, represented by Pomerantz LLP, stated that he suffered losses after buying 25 shares of GameStop and three call options in mid-May due to the alleged “pump and dump” activities.
Keith Gill, known online as Roaring Kitty, reemerged on May 13 after a two-year absence from social media, posting a series of cryptic memes that ignited a 180% surge in GameStop’s stock price, soaring from $17.46 to $48.75 by the close of trading on May 14.
In a subsequent Reddit post on June 2, Gill disclosed a substantial stake in GameStop, including five million shares and 120,000 call options expiring on June 21. This disclosure led to another surge in GameStop’s price, closing above $45 that day. By June 13, Gill revealed that he had exercised all 120,000 options calls, realizing significant profits which he then reinvested into additional GameStop shares.
The lawsuit contends that Gill failed to adequately disclose his plans to sell the options calls, misleading his followers and other market participants, thereby causing financial harm.
Former federal prosecutor Eric Rosen, now a partner at Dynamis law firm, expressed doubts about the lawsuit’s prospects in a June 30 blog post, suggesting it is likely doomed due to its foundational premise. He argued that expecting Gill to disclose precise intentions regarding the timing of options sales is unreasonable and unlikely to hold weight in court.
Rosen further criticized the lawsuit, asserting that the plaintiff’s focus appears more on capitalizing on the market impact of Gill’s social media posts rather than proving intentional deception.
According to Rosen, the core challenge in proving fraud lies in demonstrating that Gill knowingly misled investors by withholding crucial information. He argued that the lawsuit’s reliance on social media memes as actionable information presents a significant hurdle in establishing falsehoods or misrepresentations.
The case reflects a contentious intersection of social media influence and securities law, underscoring the complexities and challenges in regulating online communications that impact financial markets.