Roaring Kitty Faces Class-Action Lawsuit

Keith Gill, the stock trader famously known for his role in the 2021 GameStop short squeeze, is now facing securities fraud allegations in a class-action lawsuit. This legal action, filed on June 28 in the United States District Court for the Eastern District of New York, stems from a series of social media posts by Gill that allegedly caused significant volatility in GameStop’s stock price between May and June.

The complaint accuses Gill of orchestrating a “pump and dump” scheme for personal profit. It claims that Gill, through cryptic posts beginning on May 13, manipulated the price of GameStop shares without adequately disclosing his own trading activities, misleading his followers and resulting in financial losses for some investors.

Plaintiff Martin Radev, represented by the law firm Pomerantz, stated that he incurred losses after purchasing 25 shares of GameStop and three call options starting in mid-May. According to the complaint, Gill’s social media activity led to a 180% surge in GameStop’s stock price, which soared from $17.46 to $48.75 by May 14.

On June 2, Gill disclosed on Reddit that he held a substantial position in GameStop, including five million shares and 120,000 call options set to expire on June 21. This revelation caused another surge in GameStop’s stock price, closing above $45 that day. By June 13, Gill announced that he had exercised all his options, netting millions in gains, which he reinvested into additional GameStop shares.

The lawsuit alleges that Gill did not properly disclose his intention to sell his options ahead of time, misleading his followers and other market participants, thus causing financial harm to some investors.

In a blog post on June 30, former federal prosecutor Eric Rosen, now a founding partner at Dynamis Law, expressed skepticism about the lawsuit’s chances of success. Rosen argued that the main claim—that Gill should have disclosed his intent to sell his options—was weak. He noted that no reasonable investor would expect Gill to hold onto his options until their exact expiration date. Rosen further suggested that the plaintiff was attempting to profit from the impact of Gill’s social media posts rather than from the actual content of the posts.

Rosen emphasized that proving securities fraud requires demonstrating that the defendant knowingly lied or misled investors by withholding crucial information. He argued that it would be difficult to convince a judge that Gill’s random memes and posts on social media constituted actionable false statements or omissions.

“It is unreasonable to purchase securities simply because an individual named Roaring Kitty posted innocuous tweets on social media,” Rosen stated. He highlighted the challenges in proving that such posts contained materially false or misleading information.

Overall, Rosen predicted that the class-action complaint would likely be dismissed if Gill files a strong motion to dismiss.

This lawsuit underscores the complexities and challenges of litigating securities fraud cases based on social media activity, especially when the posts in question are vague or cryptic. This is why we constantly stress that “social investing” is a road to ruin, something that this plaintiff does not understand.